Leading from Our Strengths

1999 ANNUAL REPORT

Credo Values Decentralized Management Multiple Growth Platforms Global Reach Research & Development Partnering with Others Innovation Focus on the Long Term Leadership Brands Three Years in Brief–Worldwide % Change

(Dollars in Millions Except Per Share Figures) 1999 1998 1997 1999 1998

Sales to customers $27,471 23,995 22,830 14.5 5.1 Net earnings* 4,167 3,003 3,311 38.8 (9.3) Cash dividends paid 1,479 1,305 1,137 13.3 14.8 Shareowners’ equity 16,213 14,077 12,866 15.2 9.4

Percent return on average shareowners’ equity* 27.5 22.3 27.4 – –

Per share Net earnings – basic* $ 3.00 2.16 2.40 38.9 (10.0) – diluted* 2.94 2.12 2.34 38.7 (9.4) Cash dividends paid 1.09 0.97 0.85 12.4 14.1 Shareowners’ equity 11.67 10.13 9.26 15.1 9.5

1 7 7 Market price (year-end close) 93 /4 83 /8 64 /8 11.2 29.3

Average shares outstanding (millions) – basic 1,390.1 1,389.8 1,380.6 0.0 0.7 – diluted 1,418.2 1,417.2 1,415.4 0.1 0.1 Shareowners of record (thousands) 169.4 168.9 160.0 0.3 5.6 Number of employees (thousands) 97.8 94.3 91.1 3.7 3.5

* Net earnings and earnings per share for 1999 and 1998 include special charges of $42 million or $.03 diluted earnings per share for 1999 and $697 million or $.49 diluted earnings per share in 1998. These special charges include costs associated with the Centocor merger in 1999 and Restructuring and In-Process Research and Development charges in 1998. Excluding the impact of these charges, 1999 net earnings increased 13.8% over 1998. The percent return on average shareowners' equity in 1999 before these charges is 27.8%. For detailed discussion of these charges, refer to Note 14 and Note 17 of the Notes to Consolidated Financial Statements.

Description of the Company

Johnson & Johnson has $27.5 billion in sales and is the world’s most comprehensive and broadly based manufacturer of health care products, as well as a provider of related services, for the consumer, pharmaceutical and professional markets. Johnson & Johnson has 97,800 employees and 190 operating companies in 51 countries around the world, selling products in more than 175 countries. Letter to Shareowners

e are pleased to report that 1999 was a very good year for Johnson & Johnson as we continued to deliver strong double-digit growth in both sales and earnings. Our invest- mentsW in a broad range of opportunities, both internally and outside the Company, have allowed us to grow at an accelerated rate and provide a strong platform for future growth. Our sales and earnings ended the year in record-break- ing territory. With revenue of $27.5 billion, an increase of 14.5% over 1998, the Company has achieved 67 consecutive years of sales increases. Net earnings for the year crossed the $4 billion level for the first time to $4.2 billion, an increase of 13.8% over the $3.7 billion achieved in 1998 — excluding special merger charges in 1999 and the 1998 reconfiguration of our worldwide manufacturing network and in-process research & development charges. Earnings per share rose to $2.97 for the year, an increase of 13.8%, compared with $2.61 per share in 1998, excluding the special charges. Enabled by our strong cash flow, we increased our dividend to shareowners by 12% — our 37th consecutive year of dividend increases. Our total return to shareowners, including reinvestment of dividends, has grown at a compounded annual rate of 22.1% over the past 10 years, and 29.6% over the past five years. Ralph S. Larsen, Chairman and Chief Executive Officer The biggest news in 1999 was our largest merger ever, the $4.9 billion stock-for-stock transaction with Centocor, Inc. Centocor, a leader in monoclonal antibody technology and immunology and acute vascular care products, business through internal development combined with strengthens several of our existing growth platforms, includ- selective acquisitions that strengthen our market or tech- ing biotechnology. With Centocor and our Ortho Biotech nological position. affiliate, Johnson & Johnson has now become a world leader Our track record over the years flows directly from a in biotechnology. unique combination of underlying strengths that have Our financial position remains strong and we continue allowed us to sustain impressive growth and create endur- to be one of only six U.S. industrial corporations to maintain ing value over many years. To provide greater insight a Triple A credit rating. Our strong cash flow, combined into these key drivers of our success, the theme of this year’s with our Triple A status, has enhanced our ability to con- Annual Report is “Leading from Our Strengths.” summate more than $9 billion in mergers, acquisitions, While we have a well-earned reputation for marketing and various other third party partnerships over the past consumer and health care products, at its very core Johnson two years. & Johnson is a science-based corporation. In recent months we have seen some large mergers in Last year we committed $2.6 billion to research & develop- the pharmaceutical industry. We expect there will be ment and anticipate an investment of close to $3 billion in others. Fortunately, with total revenues approaching the 2000. We continue to set our sights ever higher, as medical $30 billion mark, Johnson & Johnson has the size and science evolves at an extraordinary rate, opening whole scale to compete aggressively in this changing landscape. new horizons for discovery research, product development We will continue to focus our energies on building our and innovation in all manner of treatments and therapies.

1 comes data that support the efficacy of our products and expansion of direct-to-consumer advertising through which we make consumers more knowledgeable about the benefits of our prescription medicines. We now market more than 100 prescription medicines in 150 countries. Of these, 33 products had 1999 sales in excess of $50 million, with 20 of them in excess of $100 million. In the Professional segment, which introduced numerous new products, worldwide sales increased 15.7% over 1998, with the addition of DePuy’s orthopaedic products; strong growth from Ethicon Endo-Surgery’s laparoscopy and mechanical wound closure products; solid contributions from Ethicon, Inc. through its Mitek suture anchors and Gynecare’s women’s health products; continued growth in disposable contact lenses from Vistakon, and steady progress from Cordis. A number of new stents were introduced by Cordis and its most recent was the BX VELOCITY coronary stent — launched in Europe, where it has been well received by the medical community. Worldwide Consumer segment sales for 1999 were particularly hard hit by negative currency adjustments of 3.5% reflecting primarily the strength of the U.S. dollar against the Euro and several Latin American currencies. Despite this currency impact, our consumer sales increased by 5.2% over the prior year. Solid growth was led by positive consumer acceptance of a newly introduced line of cosmet- Robert N. Wilson, Vice Chairman of the Board ics from Neutrogena, as well as continued strength in Neu- trogena’s base business. Also in the skin care franchise, we experienced good performances by the RoC, AVEENO, Our Pharmaceutical segment had a worldwide sales CLEAN & CLEAR and JOHNSON’S pH5.5 product lines. increase last year of more than 20% over 1998. Pharma- The adult and children’s TYLENOL and MOTRIN lines of ceutical growth reflected the strong performance of analgesic products rounded out the continued growth of PROCRIT, for the treatment of anemia; RISPERDAL, an our Consumer segment. antipsychotic medication; DURAGESIC, a transdermal Our entry into the nutraceuticals business with the patch for chronic pain; LEVAQUIN, an anti-infective, BENECOL line of cholesterol-lowering products is off to a and the oral contraceptive line of products. In the latter slower start than we had hoped initially. part of the year we received marketing approval from the We are focusing our attention on increased levels of FDA for ORTHO-PREFEST, for hormone replacement professional education which will help establish BENECOL therapy, and an additional indication for REMICADE for products as an important part of the health-conscious the treatment of rheumatoid arthritis. On the negative side, consumer’s cholesterol-lowering regimen. BENECOL is doing PROPULSID, a gastrointestinal motility medicine, experi- quite well in the United Kingdom, where we are gaining enced a sales decline as Janssen, in cooperation with the important marketing insights. FDA, implemented stronger label directions cautioning Among the challenges facing our industry is the ongoing against its use by certain patients and in conjunction with debate about changes to the health care system in the United certain other medications. States. Our view is that the public and private sectors need The growth of our pharmaceutical business has been to work together to develop sensible ways of providing health driven by a number of factors including good clinical out- insurance coverage for people who either cannot afford,

2 cannot obtain or simply decide to take their chances and person per day on alcohol … $.92 on electricity and $1.05 not purchase health insurance. per day getting our cars repaired. (Source: U.S. Depart- In addition, while about two thirds of the nation’s senior ment of Commerce, Bureau of Economic Analysis, 1998) citizens have some form of insurance coverage for prescription medicines, one third do not. This is an issue that Obviously, some people spend more on prescription must be addressed. As new benefit plans are considered, medicines, and others less, but the average per capita they should allow seniors to choose from a variety of private spending is lower than most people think — particularly sector plans that assure access to a wide array of pharma- in comparison to other ways we spend our money. It’s ceutical therapies, especially new products. important to keep this in mind as we consider changes to We support these initiatives and are working construc- our health care system. tively to help shape sound public policy. We need to create As we look forward, it is clear that the opportunities ways to solve the problems that exist, but do it in a way for Johnson & Johnson are very great, indeed. Demand that preserves all that is so good about health care in the for improved health care continues to grow at a rapid United States. rate the world over. It is also clear that the evolution of America is the world leader in discovering new prescrip- health care systems around the world will place extra- tion drugs and medical treatments. It is essential to people ordinary demands on all who choose to compete in this everywhere that, as we make changes to the health care global industry. system, we sustain the incredible record of innovation and Skills that we have worked hard to hone and sharp- productivity of research based pharmaceutical companies. en in the 1990s will stand us in good stead as we contin- We need to continually work at bringing down the cost ue to sustain superior rates of profitable growth in the of health care, including the cost of drug discovery and years ahead. In response to this challenge we have set development. At the same time, there is a great deal of our sights on four broad priorities or imperatives for misunderstanding and misplaced rhetoric on the issue of the decade ahead: pharmaceutical pricing. It is important to put this issue Innovation. The key to growth is not all that complicated in perspective and here are two points that offer food for — it lies in innovation. Continuous, non-stop, endless, thought: relentless innovation that permeates every function and • Consumer spending on pharmaceuticals represents individual in each and every one of our organizations. only about 8% of health care costs in the United States. We must continue to focus passionately on creating Yes, it is true that as a nation, we are spending more a truly innovative culture throughout the corporation. in total on prescription medicines — up 15.7% in 1998. Improving people’s lives through innovative new Of this increased spending, 3.2% was due to price products and technologies is central to the fundamental increases. The rest primarily reflects increased usage purpose and mission of Johnson & Johnson. of prescription medicines and the reasons are fairly straightforward: New and more effective medicines are Process Excellence. The second imperative for the being developed all the time, the population is getting decade is Process Excellence, a vital part of our older and living longer, and health care professionals SIGNATURE OF QUALITY (SOQ) initiative. Process and consumers alike, are increasingly aware of the ben- Excellence is a proven and high-powered improvement efits of prescription drugs — including the fact that they methodology that includes lean manufacturing and are among the most cost effective and simplest ways to Six Sigma. The combination of our SIGNATURE OF prevent, treat and cure disease. QUALITY and Process Excellence efforts has improved One recent study found that every dollar spent on productivity and helped us to take approximately $3 bil- medicines is associated with a four-dollar decline in lion in costs out of the Company over the past five years. hospital spending. Appropriate use of prescription phar- They are an important part of our quest to be the best maceuticals is part of the answer to rising health care and most competitive health care company in the world. costs — not the problem. We have over 500 trained “black belts” and even more “green belts.” These are people who have become experts • Consumers in the U.S. spend an average of $.64 cents per in problem-solving and in making fundamental improve- person per day on prescription drugs … $.91 cents per ments through our SOQ Process Excellence methodology.

3 We’ve seen enough success with Process Excellence to Johnson & Johnson is uniquely positioned for growth. make it mandatory throughout the corporation. We have an exceptionally strong financial base ... a skilled We’re creating “dashboards” of key business metrics global marketing network with 25,000 sales people ... that will allow us to measure and understand how a major presence in all sectors of health care ... a deep and we are performing in all critical areas — including cus- wide technology base with over 9,000 research staff ... tomer satisfaction and regulatory compliance. the regulatory competence to rapidly expand the utilization of our products to virtually every nation on earth ... and a The Internet. The third imperative for the decade is form of decentralized management that is both quick and the Internet. Because of the scope and breadth of our flexible. business, Johnson & Johnson will not have a single In short, Johnson & Johnson is a world leader in a Internet strategy. Rather, we are developing multiple business that has inherently unlimited underlying demand. strategies and plans across the corporation. We are differentiated from most of our competitors in Each of our operating groups and 190 companies that we have made the conscious strategic choice to be worldwide have the responsibility to develop plans broadly based in almost all growth areas of health care, that are appropriate for their business and geographic and to focus exclusively on human health care — and regions. nothing else. On an enterprise-wide basis, we also have a number We have the focus, commitment, resources and the of projects underway that span all of our businesses will … to reach for the sky. Most importantly, we also have and an inter-group team of many of our best people are a value system rooted in the Johnson & Johnson Credo. exploring the opportunities that lie ahead. It doesn’t mean that we will ever be perfect, but it does Our objective is for Johnson & Johnson to become mean that we will do our very best to conduct our business the best-connected health care organization in the world, in a decent, fair and honest way. as recognized by our customers. We wish to thank Paul J. Rizzo, who is retiring from the The Internet is going to turn the way we do business Board of Directors after more than 18 years of dedicated upside down — and for the better. From the most service. Paul has been a great source of guidance over the straightforward administrative functions, to operations, years and we will miss his wise counsel. to marketing and sales, to supply chain relationships, Our family of companies is comprised of nearly 98,000 to finance, to research & development, to customer wonderful men and women around the world who are relationships — no part of our business will remain working very hard to assure the continued growth and untouched by this technological revolution. success of Johnson & Johnson. They truly are remarkable and we thank them for their efforts. Execution. The fourth and final imperative for the decade is execution. Execution … execution … execution … perfect execution! We are living in an increasingly tough competitive environment. Our competitors are good and we respect them. All the weak ones are either gone or going. That means that we have to be better than Ralph S. Larsen ever before. Chairman of the Board and The best thought out plans in the world are not worth Chief Executive Officer very much if we do not implement them with excellence and precision. Yes, we will continue to take risks … sometimes big ones, and we will make mistakes. That’s all part of growing and building. But day to day execution of our strategies and business plans is crucial to our success. Robert N. Wilson We are confident that the men and women who make Vice Chairman of the Board up our decentralized management teams throughout the world will come through with flying colors. March 8, 2000

4 Leading from Our Strengths Johnson & Johnson has a unique combination of underlying strengths that are delivering sustained growth to the Company, the world’s most broadly based manufacturer of health care products. In the following pages we focus on these strengths:

Credo Values – For more than 50 years the Johnson & Johnson Credo has been our North Star, unifying our 97,800 employees behind a set of common values and providing a constant reminder of the Company’s responsibilities to all of its constituents.

Decentralized Management – Each of our 190 companies in 51 countries around the world is focused on a speciﬁc medical or product franchise and/or geographic area. Our individual managements are responsible for their businesses.

Multiple Growth Platforms – We produce and market a remarkably wide range of consumer, diagnostic, pharmaceutical and professional health care products, making us the world's most comprehensive and broadly based manufacturer of such products.

Global Reach – Our international growth began in 1919 in Canada and today our products are available in more than 175 countries throughout the world, enhancing the health and well-being of people everywhere.

Research & Development – Ours is a research-based organization, with an R&D investment of $2.6 billion in 1999 and almost $11 billion over the past ﬁve years. This level of research investment puts us among the top 20 companies in the world.

Partnering with Others – Over the past 10 years, through ongoing mergers and acquisitions, we have added nearly 50 companies and product lines to the Johnson & Johnson family of companies. Each year we also enter into more than 125 transactions with outside organizations including research collaborations, product licenses, joint ventures and co-marketing collaborations.

Innovation – A passion for innovative thinking is nurtured throughout our organization in everything we do. More than one third of each year’s sales come from new products introduced within the past ﬁve years and from existing products launched into new markets. In recent years, our focus on innovation has allowed us to take approximately $3 billion in costs out of our operations, freeing up funds to reinvest in future growth.

Focus on the Long Term – In the most fundamental sense, we manage the business for the long term because we have learned that it is the best way to ensure sustained growth and build shareowner value.

Leadership Brands – About 75% of our 1999 sales are from products or businesses in which we have the No. 1 or No. 2 market position worldwide. Our SIGNATURE OF QUALITY initiative helps drive us towards our goal of being the best and most competitive health care company in the world.

5 Credo Values

he unifying force for the From our headquarters in New 97,800 employees at Brunswick, NJ, to our decentral- our far-flung operations ized affiliates in the most remote cor- around the globe is ners of the earth, there is clear the Johnson & Johnson evidence that our ongoing commit- TCredo, a shared value system that ment to the principles of the Credo provides a constant reminder of the creates a common bond between Company’s responsibilities to be the people who make up our family of fair and honest … trustworthy and companies. respectful … in dealing with all of our Written in 1943 by Robert Wood constituents: Johnson, our chairman for many • Our customers, who use years, the Johnson & Johnson Credo our products and services. serves as our North Star … an • Our employees, whose enduring guide to the way in which creative energies are we try to run our business. While responsible for our prod- some of the language of the Credo has ucts and services. been updated over the years, the • The communities in which spirit of the document has not changed we live and work. from when it was first published. • Our shareowners, who Our Credo is printed in its entirety have invested their money on the outside back cover of this in the Company. publication.

The ﬁrst tenet of Our Credo concerns our customers and reminds us that we are responsible “...to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality.”

6 LEADING FROM OUR STRENGTHS Keeping track of our Latin Ameri- can consumer products companies requires frequent travel for Company Group Chairman Carlos A. Gottschalk (below, left). He is pictured with Santiago Cardenas, managing director of our afﬁliate Decentralized Management in Panama, during a recent visit.

n important difference between us and most companies — and one of our greatest strengths — is the con- ceptA of decentralized management. Typifying the decentralization of our 190 companies in 51 countries around the world is Johnson & Johnson Central America, located in Panama. Our Panamanian affiliate markets consumer and personal care products. It reports to Company Group Chairman Carlos A. Gottschalk, at left in photo with local Managing Director Santiago Cardenas, during a recent visit to Panama. Among Mr. Gottschalk’s responsibilities are our consumer businesses throughout Latin America. The individual managements of our various companies are responsible for their respective businesses and report through executives like Mr. Gottschalk to one of the Group Operating Committees that oversee our business activities. Instead of operating as one large $27.5 billion corporation, Johnson & Johnson is operated as 190 smaller companies, each focused on a specific medical or product franchise and/or geographic area, with each affiliate generating multiple options for growth. Through decentralization we combine the advantages of being big with the agility and focus of smaller firms.

LEADING FROM OUR STRENGTHS 7 Multiple Growth Platforms

cross the health care Some of our growth platforms are Consumer Products produces BAND-AID spectrum we have mul- only several years old, while others Brand Adhesive Bandages, which tiple growth platforms include product lines that go back to originated in 1921, and RED CROSS that present signiﬁcant Johnson & Johnson’s earliest days. First Aid Kits, which date back to opportunities going The minimally invasive therapies 1890. Other products include advanced forward,A for each of our broadly based category, for example, was launched wound dressings from Johnson & business segments. No other company in 1992 with the formation of Ethicon Johnson Medical and surgical staples on earth can match the breadth of Endo-Surgery. Its innovative instru- for wound closure from Ethicon Endo- consumer, pharmaceutical, and profes- ments make it possible to perform Surgery. sional products we produce and market. surgery videoscopically, through small Multiple platforms for growth The strong positions we have estab- punctures rather than the long inci- spanning our businesses and technolo- lished over the years in our base busi- sions required for traditional “open” gies — ranging from genetically nesses serve as solid foundations for surgery. engineered and monoclonal antibody building platforms for growth in cate- Our wound care platform, howev- products ... to clinical chemistry gories that include: er, includes surgical sutures, which systems for use in hospital laborato- Anti-infectives, biotechnology, cardi- the Company has marketed since it ries ... to adult skin and hair care ology and circulatory diseases, the was founded in 1886. Today Ethicon, products ... to heart mapping and central nervous system, diagnostics, Inc. produces hundreds of needle- direct myocardial revascularization — gastrointestinal therapy, minimally suture combinations and its wound represent a substantial source of invasive therapies, nutraceuticals, closure products include a liquid strength, making us the world’s most orthopaedics, pain management, skin adhesive, DERMABOND Topical Skin comprehensive manufacturer of health care, urology, vision care, women’s Adhesive (2 octyl cyanoacrylate). Also care products. health and wound care. in wound care, Johnson & Johnson

Medical Devices & Diagnostics

8 LEADING FROM OUR STRENGTHS Pharmaceuticals

Consumer Pharmaceuticals & Nutritionals

Consumer & Personal Care

LEADING FROM OUR STRENGTHS 9 Global Reach

rom Alaska to the Aus- Brazil, Argentina and Mexico, all tralian Outback ... were created more than 65 years ago. in places as different Australian operations were launched as Beijing, Bogota and in 1931 ... manufacturing began the Austrian Alps ... in Japan in 1961 ... and we have had Four products are sold in more than a presence in China since the mid- 175 countries throughout the world, 1980s. Along the way we have grown helping people enjoy longer and to 190 vigorous companies, some healthier lives. very large and well established and Our international growth began others that are fledgling entities, in 1919 in Canada with the establish- across our three business segments ment of an affiliate there, and Euro- in 51 countries. pean coverage started in England, In all of our businesses — generally in 1924. Beyond the U.S., our great- operated by local nationals who est representation is in Europe, are most sensitive to the customs and where we have 80 companies. We dynamics of their individual markets — have had a long and successful pres- we have the ability to respond rapidly ence in Latin America and our to important new opportunities in largest companies in the region, in the health care field.

Whether transport is via a gondola in Venice or more conventional means elsewhere, our consumer, pharmaceutical, professional and diagnostic products reach people in almost every country of the Research & Development world. The Company’s global expansion continues as individual economies develop and become important business opportunities.

At the R.W. Johnson Pharmaceuti- cal Research Institute, Gordon J. Madise, systems/database manager in computer assisted drug discovery, reviews the molecular structure of TOPAMAX (topiramate) Antiepileptic. He is among some 9,000 R&D personnel at our laboratories throughout the world.

10 LEADING FROM OUR STRENGTHS 190 Operating Companies in 51 Countries

International growth began in 1919 in Canada 80 companies ¥ ¥ ¥ in Europe European beginning in England ¥ in 1924 54 companies in Asia and the Paciﬁc

¥ Located in Australia since 1931 ¥ ¥ 22 companies in Located in South Africa Latin America since 1930

ith some 9,000 new pharmaceuticals and other thera- Research Investment research & peutics, medical devices, diagnostics, 1995-1999 development and non-medical, personal care prod- personnel at our ucts and toiletries. 1999 Research & worldwide Most of our originating companies Development Investment $2.6 Billion laboratories,W supported by an R&D have their own R&D capability. Phar- investment last year of $2.6 billion and maceutical research, for example, is Billions of Dollars $2.5 almost $11 billion over the last ﬁve led by two global organizations — the ¥ years, Johnson & Johnson is truly a Janssen Research Foundation and the science-based company. R.W. Johnson Pharmaceutical Research 2 We remain committed to making Institute. Centocor conducts its own substantial and productive investments R&D and we have added capability in research & development, and our through the James Black Foundation. 1.5 1999 investment places us among Our growing reservoir of scientiﬁc the top 20 companies in the world in knowledge is enhanced through 1 R&D spending. interacting with academic and other Our businesses are increasingly sci- outside research organizations, as we ence and technology driven. The intensify the search for technology- .5 massive amount of new information based solutions to many of the health coming out of our research labora- care problems that continue to plague tories holds the promise of scores of humankind. 95 96 97 98 99

LEADING FROM OUR STRENGTHS 11 In a laboratory at Centocor, Associate Scientist Kim Staquet cultures antibody-producing cells. With the Centocor merger, Johnson & Johnson’s combined biotechnology business became the second largest in the world. Centocor’s products are developed primarily through Partnering with Others monoclonal antibody technology.

artnering with others is one of our strengths because it augments internal research & development and accel- erates our growth. POver the past 10 years Johnson & Johnson has made nearly 50 business- building mergers and acquisitions of companies and product lines. In 1999 we completed our largest merger ever, a $4.9 billion stock-for- stock transaction with Centocor, Inc., a leader in monoclonal antibody technology and acute vascular care and immunology products. Centocor’s products and technological leadership enhance our existing growth platforms in biotechnology, cardiology and circulatory diseases, gastrointestinals, pain management, and oncology. While our 1998 acquisition of DePuy, one of the world’s leading orthopaedic products companies, was another major investment at $3.7 billion, we also enter into numerous smaller transactions related to growth opportunities that parallel our strategic health care interests. In addition to mergers and acquisitions, each year we enter into more than 125 third party partnerships that include product licensing agreements, joint ventures, co-marketing, research collaborations, and venture investments in outside entities in support of new ideas and new technologies.

12 LEADING FROM OUR STRENGTHS Innovation

e have made a vigorous commitment to create an environment in whichW innovation flourishes throughout our companies around the world, in all functions. Innovation is among Johnson & Johnson’s most basic strengths, as evidenced by the fact that each year more than one third of our sales come from new products introduced during the past five years and from existing products launched into new markets. Among other benefits, in recent years our focus on innovation has enabled us to eliminate approximately $3 billion in annual operating costs, making more funds available for rein- vesting in the business, while also allowing us to provide even better value to our customers. The Company has long been pio- neering in innovative consumer, pharmaceutical, professional and diagnostic products. One of our newest investigational devices now in development is the INDEPENDENCE 3000 IBOT Transporter, an advanced gyro-balanced mobility system (pictured) for people with disabilities. Among its innovative features, it bal- ances on two wheels and climbs stairs.

Discussing the INDEPENDENCE 3000 IBOT Transporter, an investigational device being developed for people with mobility related disabilities are, from left, Tammy Wilber of Miami, FL; Kenneth Giacin, sr. vice president of worldwide business development for our Independence Technology afﬁliate; and the inventor, Dean Kamen of DEKA Research & Development Corp.

LEADING FROM OUR STRENGTHS 13 Focus on the Long Term

n a world that increasingly • Net earnings over the past decade tends to focus on short term have increased from $1.1 billion to objectives and performance, $4.2 billion. Johnson & Johnson continues • We have increased our dividend to be managed for the for 37 consecutive years, another Ilong term in the most fundamental enviable record. sense. We have learned that in the • Our commitment to investing in running of our business, focusing on research & development, over the long term is the best way to the past 10 years, has gone from ensure sustained growth and build $700 million to $2.6 billion. enduring shareowner value. • Over the past 10 years the total The record shows that we are on market value of Johnson & the right track: Johnson has increased from about • We are determined and tenacious $20 billion to about $130 billion in building new businesses, and in 1999. many have grown into significant • The total return to shareowners, leadership positions. including dividends, has grown • Our sales have increased for 67 at a compound annual rate of consecutive years — every year 18.9% since the Company became since 1933, during the Great publicly owned in 1944. Depression. In fact, since the The consistency of our performance founding of the Company in 1886, over the years, through good times there have been only six years and difficult times, reflects our commit- when sales did not increase. ment to managing for the long term • Over the past 10 years sales have and building enduring value. It is increased from $9.8 billion to why we consider focusing on the long $27.5 billion. term as one of our basic strengths. 1886

1886

14 LEADING FROM OUR STRENGTHS Johnson & Johnson Sales 1886–1999

Since its founding over a century ago, Johnson & Johnson has produced a compound sales growth rate of 11.6%.

Sales are shown on a semi-logarithmic graph for ease of comparison 1999

1999

LEADING FROM OUR STRENGTHS 15 TYLENOL Brand Acetaminophen is among the brands that make McNeil Consumer Healthcare the world leader in nonprescription pharmaceuticals. Johnson & Johnson has numerous products and businesses in global market leadership positions, spurred by our process of market-driven continuous quality improvement. Leadership Brands

bout 75% of Johnson & Johnson’s 1999 sales were derived from products or businesses in which we have a marketA leadership position — deﬁned as the No. 1 or No. 2 global market share. Ethicon has long been the world leader in suture/needle combinations for wound closure, along with Johnson & Johnson Consumer Products’ strong positions in wound care and baby products, and McNeil Consumer Health- care’s nonprescription pharmaceuticals. Our newer businesses that have established leadership positions include: instruments for minimally invasive surgery from Ethicon Endo-Surgery; ACUVUE Disposable Contact Lenses from Vistakon; Epoetin alfa for treating anemia, marketed by Ortho Biotech in the U.S. as PROCRIT and in other countries by Janssen-Cilag as EPREX; blood glucose monitoring devices from LifeScan; and Janssen’s strong position in treating schizophrenia. Our world leadership in medical devices and individual franchises has been helped in the past by our SIGNATURE OF QUALITY initiative, to which we have added SOQ Process Excellence methodologies and tools as we strive to be the best and most competitive health care company in the world.

16 LEADING FROM OUR STRENGTHS Year in Review

An alliance between Johnson & Johnson treat cardiovascular disease by angio- and Integra LifeSciences Corporation genesis – the stimulation of new blood gave Johnson & Johnson Medical exclu- vessels in cardiac tissue. sive marketing and distribution rights to INTEGRA Artificial Skin – the leading (2) Following the completion of tissue-engineered skin substitute – and Johnson & Johnson’s $4.9 billion merger also serves as a foundation for expand- with Centocor, Inc., a leader in mono- ing indications and developing skin repair clonal antibody technology, the company and regeneration products. received marketing approval from the Food and Drug Administration (FDA) (1) ACUVUE 2 Contact Lens (etafilcon A), for REMICADE (infliximab) with metho- introduced by Vistakon, incorporates trexate for reducing the signs and symp- a reduced edge height with an enhanced toms of rheumatoid arthritis. REMICADE mid-peripheral zone for exceptional is being co-promoted by Centocor and handling and comfort. The company Ortho-McNeil Pharmaceutical. also completed its worldwide rollout of the ACUVUE Bifocal Contact Lens. McNeil Specialty Products Company received marketing approval from the The first oral contraceptives approved FDA for its low-calorie product, SPLENDA for birth control in Japan have been Brand Sweetener, as a general purpose introduced by Janssen-Kyowa Co., Ltd. sweetener. Two types of ORTHO-NOVUM Tablets (norethindrone/ethinyl estradiol) are (3) DePuy introduced the C-STEM being co-marketed in Japan with Mochida Total Hip System (pictured) in the U.S; Pharmaceutical Co., Ltd. it has a unique tri-taper geometry and surface finish that work in harmony Cordis’ Biosense Webster unit signed with the patient’s anatomy and with collaboration agreements with Rhone- acrylic bone cement. Other DePuy Poulenc Rorer Pharmaceuticals, Inc., launches included UNI-ROM Total Hip; Warner-Lambert Company and Vascular P.F.C. Offset Tray; P.F.C. Sigma Porous Genetics Inc., for use of Biosense Web- Tray; Lumbar I/F CAGE spinal implant; ster’s guided delivery catheters with AGILITY Ankle; and GLOBAL FX Shoul- investigational gene therapy products to der Prosthesis.

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YEAR IN REVIEW 17 SPORANOX (itraconazole) Injection, UVADEX (methoxsalen) Sterile Solution. (6) Johnson & Johnson Consumer an intravenous treatment for difficult- FDA and Health Canada both cleared Products Company introduced to-treat, potentially life-threatening the UVAR XTS System, a totally auto- JOHNSON’S Baby Shampoo Gel (regular, fungal infections, was granted market- mated instrument for performing photo- detangling and moisturizing formula- ing approval by the FDA. Marketed pheresis. The products are used together tions) and JOHNSON’S Baby Oil Gel with by Ortho Biotech and Janssen-Cilag, in treating cutaneous T-cell lymphoma. Chamomile & Multi-Vitamin Complex. SPORANOX Injection is used in treating The gel products are packaged in histoplasmosis, blastomycosis and To better respond to emerging market convenient, easy-to-use flip-cap bottles. refractory aspergillosis, usually found challenges and opportunities throughout For older kids ages 5-10, the company when immune systems are compro- countries forming the Association of introduced JOHNSON’S Kids Hair Care, mised by chemotherapy, AIDS or HIV Southeast Asia Nations (ASEAN) and a new line of products for cleaning, infection. help implement the ASEAN Free Trade conditioning and styling. Area by 2003, Johnson & Johnson con- (4) Ortho-McNeil Pharmaceutical sumer affiliates in Indonesia, Malaysia, CLEAN & CLEAR Oil Absorbing Sheets, introduced the ORTHO DIALPAK Tablet the Philippines, Singapore, Thailand which remove excess oil and shine from Dispenser, a discreet and refillable dis- and Vietnam have merged into one man- the face without removing the skin’s penser for oral contraceptives that resem- agement company. natural moisture or smudging makeup, bles a woman’s makeup compact. Evelyn were introduced by Johnson & Johnson Minaya, M.D. (pictured), a gynecologist/ Ortho-Clinical Diagnostics introduced Consumer Products Company. obstetrician in Shrewsbury, NJ, discusses the ORTHO SUMMIT System and the the ORTHO DIALPAK with a patient. ORTHO SUMMIT Processor, the first auto- (7) The STERRAD 50 Compact Steril- mated systems developed for blood and ization System, a low-temperature PEPCID AC (famotidine 10 mg) Gelcaps, plasma screening applications. These hydrogen peroxide gas plasma steriliza- a new form of the No. 1 selling nonpre- systems increase standardization and tion system for medical devices and sur- scription acid controller that prevents enhance the quality of test results. gical instruments, was introduced by and relieves heartburn and acid indi- Advanced Sterilization Products (ASP). gestion, was launched by Johnson & (5) The RoC Facial Skin Care product Safe, compact, mobile and easy to use, Johnson • Merck Consumer Pharmaceu- line from France was launched in the the system was designed for point- ticals Co. U.S. Developed by dermatologists, of-care sterilization. ASP also launched the technologically-advanced RoC Brand CIDEX OPA Solution, which provides In photoimmune therapy, Therakos offers 11 products in four segments: high level disinfection in 12 minutes – received approval in the U.S. (FDA) and anti-wrinkle, firming, hydrating/moistur- the fastest of any such product for med- U.K. (Medical Control Agency) to market izing and cleansing/toning. ical device reprocessing.

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18 YEAR IN REVIEW MONISTAT DUAL PAK (miconazole approved for marketing by the FDA. Innovasive Devices, Inc., which man- nitrate vaginal insert) Soft Gel Vaginal ORTHO-PREFEST is indicated for women ufactures and sells sports medicine Insert, 1200 mg and (miconazole nitrate with an intact uterus for the treatment devices used in the surgical repair of cream) External Vulvar Cream, 2% was of moderate to severe vasomotor symp- soft tissue in the knees, shoulders and introduced by Personal Products Compa- toms associated with menopause, other small joints, was merged with ny. It is the first prescription product treatment of vulvar and vaginal atrophy and into a wholly owned subsidiary of with a one-dose vaginal treatment and a and prevention of osteoporosis. Johnson & Johnson and now operates separate tube of external cream for relief as part of Ethicon, Inc. of vulvovaginal candidiasis. (9) The BENECOL line of cholesterol- lowering products, launched by McNeil (11) NIZORAL A-D (ketoconazole 1%), Cordis Corporation acquired Angio- Consumer Healthcare, has been from McNeil Consumer Healthcare is Guard, Inc., a developer of innovative expanded and now includes regular and the first nonprescription antifungal containment technology that protects light margarine spreads, snack bars shampoo specifically formulated to treat the heart and brain from embolic parti- and softgels. BENECOL products con- a leading cause of dandruff. It contains cles potentially dislodged during inter- tain plant stanol ester, clinically proven the world’s most prescribed dandruff- ventional medical procedures. to reduce LDL or “bad” cholesterol fighting ingredient. levels by 14% when three servings are (8) A new drug discovery facility was eaten per day. Ortho-Clinical Diagnostics and Chiron opened by the R.W. Johnson Pharmaceu- Corporation reached an exclusive tical Research Institute in La Jolla, Calif. (10) Among Ethicon, Inc. introductions license agreement with Advanced Life Scientists at the 120,000 square-foot was PANACRYL Absorbable Suture, Sciences Corporation of Japan for cer- facility focus on cellular and molecular the longest-lasting absorbable suture on tain of its hepatitis C virus (HCV) Antigen biology, chemistry and bioinformatics to the market. Delivering unprecedented testing discoveries. The license to these identify novel therapeutic approaches. strength retention, PANACRYL Suture discoveries has permitted Ortho-Clinical Pictured are Michael Jackson, Ph.D., is indicated for use in general soft tissue Diagnostics to rapidly develop a test senior director, biological sciences and approximation and/or ligation. for HCV Antigen. It is the first test of its site director of the new facility, and Wai- kind and has already received registra- Ping Leung, Ph.D., group leader. Janssen Pharmaceutica and Neuro- tion for sale in France. By testing for HCV crine Biosciences Inc. expanded a collab- Antigen in addition to HCV Antibodies, ORTHO-PREFEST (17(beta)-estradiol/ orative research agreement related to laboratories around the world can make norgestimate) Tablets, a new single the role of corticotropin releasing factor transfusions safer and provide more tablet hormone replacement therapy (CRF) receptor antagonists in depression accurate diagnostic information on this from Ortho-McNeil Pharmaceutical, was and anxiety. serious disease.

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YEAR IN REVIEW 19 (12) New HEALTHY WOMAN Dietary dermal products and a contraceptive Ethicon Endo-Surgery’s European Sur- Supplements from Personal Products patch Cygnus was developing with the gical Institute (ESI) in Norderstedt, Ger- Company are helping women entering R.W. Johnson Pharmaceutical Research many, was expanded with the construc- mid-life to proactively meet their chang- Institute. tion of a two-story building linked to the ing needs. HEALTHY WOMAN Soy original facility. Training in minimally Menopause Supplement with OPTISOY GYNECARE, the women’s health divi- invasive surgery is provided at the ESI helps reduce hot flashes including sion of Ethicon, introduced a second for the European medical community. night sweats. HEALTHY WOMAN Bone generation GYNECARE THERMACHOICE Health Supplement contains calcium Uterine Balloon Therapy System as a TOPAMAX (topiramate) Tablets and and vitamin D, helping to build bones less invasive alternative to the hysterec- TOPAMAX (topiramate capsules) Sprin- and reduce the risk of osteoporosis. tomy procedure, and GYNECARE TVT kle Capsules, developed by the R.W. Tension Free Support for Incontinence. Johnson Pharmaceutical Research Insti- FDA marketing approvals of Cordis tute and marketed by Ortho-McNeil stents included the MINI CROWN Coro- (14) ACIPHEX (rabeprazole sodium), Pharmaceutical, received two new indi- nary Stent, designed for smaller diameter a new proton pump inhibitor with once- cations from the FDA: as add-on treat- vessels; the CROSSFLEX LC Coronary daily dosing, was launched in the U.S. ment for pediatric patients ages 2-16 Stent, a laser-cut device that combines under a strategic alliance by Janssen who experience partial onset seizures, exceptional deliverability with excellent Pharmaceutica and Eisai Co., Ltd., of and as add-on treatment for adults and scaffolding and high radial strength; Japan, with FDA marketing approval for pediatric patients ages 2-16 who experi- and the PALMAZ CORINTHIAN IQ Tran- healing erosive gastroesophageal reflux ence primary generalized tonic-clonic shepatic Biliary Stent, for relieving disease (GERD), maintenance of healed seizures. symptoms (blockages) associated with erosive GERD, healing of duodenal ulcers, cancers in the biliary tree. and treating certain hypersecretory (16) The MAMMOTOME Hand-Held, a conditions. ACIPHEX is co-promoted in minimally invasive breast biopsy device (13) Neutrogena Corporation introduced the U.S. by Janssen Pharmaceutica and that helps doctors diagnose whether a line of cosmetics that utilize the latest Eisai Inc. of Teaneck, NJ. breast abnormalities are cancerous, was advances in skin care technology to introduced by Ethicon Endo-Surgery. improve the look and condition of skin. (15) The AVEENO Natural Colloidal The MAMMOTOME System, which offers Oatmeal products, including moisturiz- women a minimally invasive alternative Ortho-McNeil Pharmaceutical pur- ing lotion, specialty soaps, bath and to open surgical biopsy, is used in physi- chased the drug delivery business of anti-itch treatments, is the leading brand cians’ offices, breast care centers and Cygnus, Inc., which includes assets relat- of the dermatological skin care business hospitals. It performs biopsies in less than ed to two hormone replacement trans- acquired from S.C. Johnson & Son. an hour and requires no stitches.

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20 YEAR IN REVIEW Financials

Contents

22 Management’s Discussion and Analysis of Results

30 Consolidated Financial Statements

34 Notes to Consolidated Financial Statements

44 Report of Management

44 Independent Auditor’s Report

45 Segments of Business and Geographic Areas

46 Summary of Operations and Statistical Data 1989-1999

47 Principal Global Afﬁliates

51 Worldwide Family of Companies

55 Board of Directors and Committees of the Board

56 Corporate Ofﬁcers and Company Group Chairmen

57 Corporate and Shareowner/ Investor Information Management’s Discussion and Analysis of Results of Operations and Financial Condition

Overview Sales to Customers Worldwide sales in 1999 were a record $27.5 billion, an increase Millions of Dollars of 14.5% and marked the 67th consecutive year of positive sales 90 growth. The Company achieved sales growth of 16.4% on an operational basis before the effect of the stronger U.S. dollar that depressed sales growth by 1.9%. During 1999, the Company completed its merger with Centocor, Inc., which was accounted for by the pooling-of- 99 interests method of accounting. As a result, this Annual Report 0 5,600 11,200 16,800 22,400 28,000 reflects the combination of financial information for all periods. For detailed discussion of acquisitions, see Note 17. Domestic International Reported net earnings increased by 38.8% to $4.2 billion. Prior to the effect of special charges for both 1999 and 1998, Worldwide net earnings for 1999 were $4.2 billion, reflecting a net earnings increased by 13.8%. For detailed discussions on 38.8% increase over 1998. Worldwide net earnings per share for special charges, see Note 14 and Note 17. 1999 equaled $2.94 per share, an increase of 38.7% from the In 1999, $2.6 billion or 9.5% of sales was invested in research $2.12 net earnings per share in 1998. Excluding the impact of and development. This investment, the highest in the Company’s special charges, both worldwide net earnings and net earnings history, reflects the Company’s continued commitment to per share increased 13.8% over 1998. The special charges achieving significant advances in health care through the dis- included costs associated with the Centocor merger in 1999 and covery and development of innovative, knowledge-based, cost the reconfiguration of the worldwide manufacturing network effective products that prolong and enhance the quality of life. and in-process research and development (IPR&D) charges Cash generated from operations in 1999 was $5.68 billion in 1998. and served as the primary source of funding to finance the capi- Worldwide net earnings for 1998 including the impact of the tal investments of $1.73 billion, dividend distribution of $1.48 bil- Restructuring and IPR&D charges were $3.0 billion, reflecting lion and the purchase of treasury stock of $0.84 billion for a 9.3% decrease from 1997. Worldwide net earnings per share employee benefit plans. Cash dividends paid to shareowners in for 1998 equaled $2.12 per share, a decrease of 9.4% from the 1999 increased by 13.3% over 1998 and represented the 37th $2.34 net earnings per share in 1997. consecutive year of dividend increases. Excluding the impact of the Restructuring and IPR&D Total equity market capitalization at year-end 1999 was charges, worldwide net earnings for 1998 were $3.7 billion, $129.6 billion or an increase of 11.2% over 1998 while the reflecting an 11.7% increase over 1997. Excluding the impact percentage return on average shareowners’ equity was 27.5% of these charges, worldwide net earnings per share for 1998 in 1999. equaled $2.61 per share, an increase of 11.5% over the $2.34 The worldwide health care market continues to be trans- net earnings per share in 1997. formed as customers have become more knowledgeable and Worldwide net earnings for 1997 were $3.31 billion, or net demand even greater value. Simultaneously, the marketplace earnings per share of $2.34, representing an increase over 1996 has become increasingly more competitive. The Company of 14.9% and 14.1%, respectively. believes that it is well positioned to meet these challenges Average diluted shares of common stock outstanding were by providing innovative products as demonstrated by the 1.42 billion in 1999, 1998 and 1997. Company’s commitment to research and development. In addition, dedicated employees along with strong Credo values and Net Earnings a decentralized management structure enable the Company to Millions of Dollars provide its customers with value-creating, innovative products 90 and services. Sales and Earnings In 1999, worldwide sales increased 14.5% to $27.5 billion compared to increases of 5.1% in 1998 and 4.9% in 1997. Excluding 98 98* the impact of foreign currencies, worldwide sales increased 99 16.4% in 1999, 7.6% in 1998 and 8.9% in 1997. The strong perfor- 0 840 1,6801680 2,5202520 3,3603360 4,200 4200 mance of products introduced in the past few years and the con- *1998 results excluding Restructuring and In-Process Research and Development tinued expansion of base businesses resulted in the sales charges. increase in 1999. Additionally, the full year impact of the DePuy acquisition contributed to this sales growth. Sales by domestic companies were $15.39 billion in 1999, $12.85 billion in 1998 and $11.90 billion in 1997. This represents an increase of 19.7% in 1999, 8.0% in 1998 and 8.3% in 1997.

22 Sales by international companies were $12.09 billion in 1999, products, improvement of existing products, technical support of $11.15 billion in 1998 and $10.93 billion in 1997. This represents products and compliance with governmental regulations for the an increase of 8.4% in 1999, 1.9% in 1998 and 1.5% in 1997. protection of the consumer. Worldwide costs of research activi- Excluding the impact of the foreign currency fluctuations over ties, excluding the special charges of IPR&D, were as follows: the past three years, international company sales increased (Millions of Dollars) 1999 1998 1997 12.4% in 1999, 7.1% in 1998 and 9.6% in 1997. Research expense $ 2,600 2,336 2,209 All geographic areas throughout the world posted solid oper- Percent increase ational gains during 1999. Excluding the effect of exchange rate over prior year 11.3% 5.7% 12.6% fluctuations of the U.S. dollar on foreign currencies, sales Percent of sales 9.5 9.7 9.7 increased 10.1% in Europe, 12.3% in the Western Hemisphere (excluding the U.S.) and 18.6% in the Asia-Pacific, Africa regions. Research expense as a percent of sales for the Pharmaceutical The Company achieved an annual compound growth rate segment was 15.0% for 1999, 15.9% for 1998 and 17.1% for of 10.8% for worldwide sales for the 10 year period since 1997 while averaging 6.0%, 6.1% and 5.7% in the other two 1989 with domestic sales growing at a rate of 12.1% and inter- segments. national sales growing at a rate of 9.5%. Worldwide net Research Expense earnings achieved a 10 year annual growth rate of 14.4%, Millions of Dollars while earnings per share grew at a rate of 14.0%. For the last 90 five years, the annual compound growth rate for sales was 11.7%. The annual compound growth rate for net earnings was 16.7% and the annual compound growth rate for earnings per share was 15.2%. Common Stock Market Prices 99 The Company’s common stock is listed on the New York Stock 0 540 1,080 1,620 2,160 2,700 Exchange under the symbol JNJ. The approximate number of shareowners of record at year-end 1999 was 169,384. The com- posite market price ranges for Johnson & Johnson common Advertising expenses, which are comprised of television, radio, stock during 1999 and 1998 were: print media as well as Internet advertising, were $1.39 billion in 1999 1998 1999, $1.19 billion in 1998 and $1.26 in 1997. Additionally, signifi- High Low High Low cant expenditures were incurred for promotional activities such 1 3 as couponing and performance allowances. First quarter $94 77 76⁄2 63 ⁄8 13 7 The Company believes that its operations comply in all mate- Second quarter 103 87 ⁄16 77 ⁄8 67 7 3 1 rial respects with applicable environmental laws and regula- Third quarter 105 ⁄8 90 80 ⁄4 68 ⁄4 7 1 3 5 tions. The Company or its subsidiaries are parties to a number Fourth quarter 106 ⁄8 90 ⁄8 89 ⁄4 72 ⁄8 1 7 of proceedings brought under the Comprehensive Environ- Year-end close 93 ⁄4 83 ⁄8 mental Response, Compensation and Liability Act, commonly Cash Dividends Paid known as Superfund, and comparable state laws, in which pri- The Company increased its dividends in 1999 for the 37th con- mary relief sought is the cost of past and future remediation. secutive year. Cash dividends paid were $1.09 per share in 1999 While it is not feasible to predict or determine the outcome of compared with dividends of $.97 per share in 1998 and $.85 per these proceedings, in the opinion of the Company, such proceed- share in 1997. The dividends were distributed as follows: ings would not have a material adverse effect on the results of 1999 1998 1997 operations, cash flows or financial position of the Company. First quarter $ .25 .22 .19 Worldwide sales do not reflect any significant degree of sea- Second quarter .28 .25 .22 sonality; however, spending has been heavier in the fourth Third quarter .28 .25 .22 quarter of each year than in other quarters. This reflects Fourth quarter .28 .25 .22 increased spending decisions, principally for advertising and research grants. Total $1.09 .97 .85 The worldwide effective income tax rate was 27.6% in 1999, On January 3, 2000, the Board of Directors declared a regular 28.2% in 1998 and 27.8% in 1997. The reduction in the 1999 cash dividend of $.28 per share, paid on March 7, 2000 to share- worldwide effective tax rate as compared to 1998 is primarily owners of record on February 15, 2000. due to the Company’s non-deductible IPR&D charge taken in The Company expects to continue the practice of paying reg- connection with the acquisition of DePuy in 1998. Refer to ular cash dividends. Note 8 for additional information. Costs and Expenses Research activities represent a significant part of the Company’s business. These expenditures relate to the development of new

23 Distribution of Sales Revenues 10% appreciation of the U.S. Dollar from January 2, 2000 mar- The distribution of sales revenues for 1999, 1998 and 1997 were: ket rates would increase the unrealized value of the Company’s 1999 1998 1997 forward contracts by $271 million. Conversely, a 10% deprecia- Employment costs 23.1% 24.0% 23.9% tion of the U.S. Dollar from January 2, 2000 market rates would Costs of materials decrease the unrealized value of the Company’s forward con- and services 50.1 48.9 50.8 tracts by $251 million. In either scenario, the gain or loss on the Depreciation and forward contract would be offset by the gain or loss on the amortization of underlying transaction and therefore would have no impact on property and future earnings and cash flows. intangibles 5.3 5.4 4.7 The Company enters into interest rate and currency swap Taxes other than contracts to manage the Company’s exposure to interest rate payroll 6.3 6.3 6.1 changes and hedge foreign currency denominated debt. The Earnings reinvested impact of a 1% change in interest rates on the Company’s inter- in business 9.8 7.1 9.5 est rate sensitive financial instruments would be immaterial. Cash dividends paid 5.4 5.4 5.0 The Company does not enter into financial instruments for Restructuring/IPR&D — 2.9 — trading or speculative purposes. Further, the Company has a policy of only entering into contracts with parties that have at Liquidity and Capital Resources least an “A” (or equivalent) credit rating. The counterparties Cash generated from operations and selected borrowings pro- to these contracts are major financial institutions and the vide the major sources of funds for the growth of the business, Company does not have significant exposure to any one coun- including working capital, additions to property, plant and terparty. Management believes the risk of loss is remote. equipment and acquisitions. Cash and current marketable Changing Prices and Inflation securities totaled $3.88 billion at the end of 1999 as compared Johnson & Johnson is aware that its products are used in a set- with $2.78 billion at the end of 1998. ting where, for more than a decade, policymakers, consumers, Total unused credit available to the Company approximates and businesses have expressed concern about the rising cost of $3.0 billion, including $1.2 billion of credit commitments with health care. In response to these concerns, Johnson & Johnson various banks worldwide, $800 million of which expire on has a long-standing policy of pricing products responsibly. For September 29, 2000 and $400 million on October 6, 2004. the period 1980-1999, in the United States, the weighted average The Company’s shelf registration filed with the Securities compound annual growth rate of Johnson & Johnson price and Exchange Commission enables the Company to issue up increases for health care products (prescription and over-the- to $2.59 billion of unsecured debt securities, and warrants counter drugs, hospital and professional products) was below to purchase debt securities, under its medium term note the U.S. Consumer Price Index (CPI) for the period. (MTN) program. In 1999, the Company issued a total of $500 Inflation rates, even though moderate in many parts of the million notes from the shelf registration: $200 million of 6.625% world during 1999, continue to have an effect on worldwide notes due 2009 and $300 million of 6.95% notes due 2029. At economies and, consequently, on the way companies operate. In January 2, 2000, the Company had $1.79 billion remaining on the face of increasing costs, the Company strives to maintain its its shelf registration. profit margins through cost reduction programs, productivity In addition to the notes issued under the shelf registration, improvements and periodic price increases. the Company issued $250 million, 6.0% Eurodollar notes due in 2001. A summary of borrowings can be found in Note 6. YEAR 2000 Total borrowings at the end of 1999 and 1998 were $4.26 bil- The “Year 2000” issue relates to potential problems resulting lion and $4.48 billion, respectively. In 1999 and 1998, net debt from a practice by computer programmers. For some time, cal- (debt net of cash and current marketable securities) was 2.3% endar years had frequently been represented in computer pro- and 10.8%, respectively of net capital (shareowners’ equity and grams by their last two digits. Thus, “1998” would be rendered net debt). Total debt represented 20.8% of total capital (share- “98.” The logic of the programs frequently assumed that the first owners’ equity and total debt) in 1999 and 24.2% of total capital two digits of a year given in this format are “19.” It was unclear in 1998. Shareowners’ equity per share at the end of 1999 was what would happen with respect to such computer programs $11.67 compared with $10.13 at year-end 1998, an increase of upon the change in calendar year from 1999 to 2000. The pro- 15.2%. For the period ended January 2, 2000, there were no gram or device might interpret “00” as “2000,” “1900,” an error, material cash commitments. or some other input. In such a case, the computer program or device might cease to function, function improperly, provide an Financial Instruments erroneous result or act in some unpredictable manner. The Company uses financial instruments to manage the impact The Company has had a program in place since the fourth of interest rate and foreign exchange rate changes on earnings quarter of 1996 to address Year 2000 issues in critical business and cash flows. Accordingly, the Company enters into forward areas related to its products, information management systems, foreign exchange contracts to protect the value of existing for- non-information systems with embedded technology, suppliers eign currency assets and liabilities and to hedge future foreign and customers. A report on the progress of this program was currency product costs. Gains or losses on these contracts are provided to the Audit Committee of the Company’s Board of offset by the gains or losses on the underlying transactions. A Directors. The Company completed its review of its critical auto-

24 mated information systems and the related remediation of which they are willing to commit. The Company has completed these systems prior to December 31, 1999. its plan for monitoring of critical suppliers. The Company also reviewed and adjusted, where necessary, The Company contacted major customers to assess their its other automated systems prior to December 31, 1999. The readiness to deal with Year 2000 issues. If a significant number Company had a plan for assessment and testing of all of its of such suppliers and customers were to experience business products and determined that all current products offered for disruptions as a result of their lack of Year 2000 readiness, their sale on and after January 1, 2000 are Year 2000 ready. problems could have a material adverse effect on the financial The Company engaged additional outside consultants to position and results of operations of the Company. This analysis examine selected critical areas in certain of its major franchises. of potential exposures includes both the domestic and interna- In addition, during 1999, these consultants assessed critical tional operations of the Company. During the period from sites worldwide to evaluate our programs, processes and December 31, 1999 through January 31, 2000 the Company did progress and to identify any remaining areas of effort required not experience any Year 2000 issues with critical suppliers to achieve compliance. or major customers that had a material adverse effect on the The total costs of addressing the Company’s Year 2000 business or operations of the Company. readiness issues were not material to the Company’s financial The Company believes that its most reasonably likely “worst condition or results of operations. Since initiation of its program case scenario” would occur if a significant number of its key in 1996, the Company expensed $210 million, on a worldwide suppliers or customers were not fully Year 2000 functional, in basis, in internal and external costs on a pre-tax basis to which case the Company estimates that up to a 10 business address its Year 2000 readiness issues. These expenditures day disruption in business operations could occur. In order to include information system replacement and embedded tech- address this situation, the Company has formulated contin- nology upgrade costs of $120 million, supplier and customer gency plans intended to deal with the impact on the Company compliance costs of $16 million and all other costs of $74 mil- of Year 2000 problems that may be experienced by such critical lion. The Company currently estimates that the total of such suppliers and major customers. costs for addressing its internal Year 2000 readiness, on a With respect to critical suppliers, these plans may include, worldwide basis, will not be materially more than the amounts among others, arranging availability of substitute sources of currently expended. These costs have been expensed as they utilities, closely managing appropriate levels of inventory and were incurred and have been funded through operating cash identifying alternate sources of supply of raw materials. The flows. No projects material to the financial condition or results Company is also alerting customers to their need to address of operations of the Company were deferred or delayed as a these problems, but the Company has few alternatives available, result of this project. other than reversion to manual methods, for avoiding or miti- The ability of the Company to implement and effect its Year gating the effects of lack of Year 2000 readiness by major cus- 2000 readiness program and the related costs or the costs of tomers. In any event, even where the Company has contingency non-implementation, cannot be precisely determined at this plans, there can be no assurance that such plans will address time. The Company’s automated systems (both information all the problems that may arise, or that such plans, even if technology and non-information systems) are generally implemented, will be successful. complex but are decentralized. Notwithstanding the foregoing, the Company has no reason Although a failure to complete remediation of one system to believe that its exposure to the risks of supplier and customer may adversely affect other systems, the Company does not Year 2000 readiness is any greater than the exposure to such currently believe that such effects are likely. If, however, a sig- risk that affects its competitors generally. Further, the Company nificant number of such failures should occur, some of such believes that its programs for Year 2000 readiness will signifi- systems might be rendered inoperable and would require man- cantly improve its ability to deal with its own Year 2000 ual back-up methods or other alternatives, where available. readiness issues and those of suppliers and customers over In such a case, the speed of processing business transactions, what would have occurred in the absence of such a program. manufacturing and otherwise conducting business would likely That does not, however, guarantee that some material adverse decrease significantly and the cost of such activities would effects will not occur. increase, if they could be carried on at all. This situation could During the period from December 31, 1999 through January have a material adverse effect on the financial condition and 31, 2000, the Company’s worldwide operations continued to results of operations of the business. function in the ordinary course in all material respects. There The Company has highly integrated relationships with were no material business interruptions or material problems certain of its suppliers and customers. These include among with the Company’s products related to Year 2000 readiness others: providers of energy, telecommunications, raw materials and no material customer or supplier issues arising from Year and components, financial institutions, managed care organiza- 2000 readiness issues were noted. tions and large retail establishments. The Company reviewed The descriptions of Year 2000 issues set forth in this section with its critical suppliers and major customers the status of are subject to the qualifications set forth herein under the head- their Year 2000 readiness. The Company has requested assur- ing “Cautionary Factors that May Affect Future Results.” ances of Year 2000 readiness from such suppliers. However, New Accounting Pronouncements many critical suppliers have either declined to provide the In June 1998, the Financial Accounting Standards Board requested assurances or have limited the scope of assurances to issued Statement of Financial Accounting Standards No. 133

25 “Accounting for Derivative Instruments and Hedging Activities” Operating Profit by Segment of Business (SFAS 133). This standard was amended by Statement of Millions of Dollars Financial Accounting Standards No. 137 “Accounting for Derivative Instruments and Hedging Activities-Deferral of the 97 % 11.855.1 33.1 $4,666 Effective Date of FASB Statement No. 133” and changed the 9898* % 9.7 68.4 21.9 $4,288 effective date for SFAS 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires that all deriva- 99 %11.6 60.8 27.6 $5,910 tive instruments be recorded on the balance sheet at their Consumer Pharmaceutical Professional respective fair values. Changes in the fair value of derivatives *1998 results including Restructuring and In-Process Research and Development are recorded each period in current earnings or other compre- charges. Excluding these charges, operating profit by segment of business was: hensive income, depending on the designation of the hedge Consumer 12.7%, Pharmaceutical 60.2%, and Professional 27.1% transaction. For fair-value hedge transactions in which the Company is hedging changes in the fair value of assets, liabili- Operating Profit Percent ties or firm commitments, changes in the fair value of the of Sales derivative instrument will generally be offset by changes in the (Millions of Dollars) 1999(1) 1998 1998(2) 1999 1998 hedged item’s fair value. For cash flow hedge transactions in Consumer $ 683 414 658 10.0% 6.3% which the Company is hedging the variability of cash flows Pharmaceutical 3,595 2,933 3,132 33.6 33.0 related to a variable rate asset, liability or forecasted transac- Professional 1,632 941 1,409 16.5 11.0 tion, changes in the fair value of the derivative instrument will Worldwide total 5,910 4,288 5,199 21.5 17.9 be reported in other comprehensive income. The gains and Expenses not losses on the derivative instrument that are reported in other allocated to comprehensive income will be recognized in earnings in the segments (157) (106) (106) periods in which earnings are impacted by the variability of the cash flows of the hedged item. Earnings before The Company will adopt SFAS 133 in the first quarter of 2001 taxes on income $5,753 4,182 5,093 20.9% 17.4% and does not expect it to have a material effect on the Company’s (1) 1999 results include special charges related to the Centocor merger. Excluding results of operations, cash flows or financial position. these charges, operating profit as a percent of sales for the Pharmaceutical segment was 34.1%. Segments of Business (2) 1998 results excluding Restructuring and In-Process Research and Develop- Financial information for the Company’s three worldwide busi- ment charges. Excluding these charges, operating profit as a percentage of sales by segment was: Consumer 10.1%, Pharmaceutical 35.2% and Professional 16.4%. ness segments is summarized below. See Note 12 for additional information on segments of business. Consumer The Consumer segment’s principal products are personal care Sales by Segment of Business and hygienic products, including nonprescription drugs, adult Millions of Dollars skin and hair care products, baby care products, oral care

% 28.534.6 36.9 $22,830 products, ﬁrst aid products and sanitary protection products. Major brands include AVEENO skin care products; BAND-AID % 27.2 37.1 35.7 $23,995 Brand Adhesive Bandages; BENECOL; CAREFREE Panty

% 25.0 38.9 36.1 $27,471 Shields; CLEAN & CLEAR teen skin care products; IMODIUM A-D, an antidiarrheal; JOHNSON’S Baby line of products; Consumer Pharmaceutical Professional JOHNSON’S pH5.5 skin and hair care products; MONISTAT, a remedy for vaginal yeast infections; adult and children’s Sales Increase MOTRIN IB analgesic products; MYLANTA gastrointestinal products and PEPCID AC Acid Controller from the Johnson & (Millions of Dollars) 1999 1998 Amount Percent Johnson • Merck Consumer Pharmaceuticals Co.; NEUTRO- Consumer $ 6,864 6,526 338 5.2% GENA skin and hair care products; o.b. Tampons; PENATEN Pharmaceutical 10,694 8,900 1,794 20.2 and NATUSAN baby care products; PIZ BUIN and SUNDOWN Professional 9,913 8,569 1,344 15.7 sun care products; REACH toothbrushes; RoC skin care prod- Worldwide total $27,471 23,995 3,476 14.5% ucts; SHOWER TO SHOWER personal care products; STAYFREE sanitary protection products; and the broad family of TYLENOL acetaminophen products. These products are marketed principally to the general public and distributed both to wholesalers and directly to independent and chain retail outlets. Consumer segment sales in 1999 were $6.86 billion, an increase of 5.2% over 1998. Domestic sales increased by 10.4% while international sales declined by .2%. International sales gains in local currency of 7.0% were offset by a negative currency impact of 7.2%. Consumer sales were led by continued strength in the skin care franchise that includes the

26 NEUTROGENA, RoC, and CLEAN & CLEAR product lines, as duodenal ulcers; IMODIUM (loperamide HCl), an antidiarrheal; well as strong performances from the adult and children’s MOTILIUM (domperidone), a gastrointestinal mobilizer; TYLENOL line of analgesic products. PREPULSID (cisapride, sold in the U.S. as PROPULSID), a During 1999, the Company launched various products that gastrointestinal prokinetic; and REMICADE (infliximab), a included BENECOL, the dietary ingredient stanol ester that novel monoclonal antibody for treatment of certain Crohn’s aids in the reduction of cholesterol and also completed the disease patients. acquisition of the AVEENO brand products. Prescription drugs in the hematology field include EPREX Consumer segment sales in 1998 were $6.53 billion, an (Epoetin alfa, sold in the U.S. as PROCRIT), a biotechnology increase of .4% over 1997. Sales by domestic companies derived version of the human hormone erythropoietin that accounted for 51.0% of the total segment, while international stimulates red blood cell production. companies accounted for 49.0%. During 1998, the Company Prescription drugs in the immunology field include announced the signing of a definitive agreement to acquire the ORTHOCLONE OKT-3 (muromonab-CD3), for reversing the dermatological skin care business of S.C. Johnson & Son, Inc., rejection of kidney, heart and liver transplants. including the AVEENO brand specialty soaps, bath, anti-itch Prescription drugs in the neurology field include TOPAMAX and moisturizing cream and lotion products. (topiramate) and STUGERON (cinnarizine). The 1998 special pre-tax charge for the Consumer segment Prescription drugs in the oncology field include was $244 million. See Note 14 for detailed discussion on the ERGAMISOL (levamisole hydrochloride), a colon cancer drug Restructuring charges. and LEUSTATIN (cladribine), for hairy cell leukemia. Consumer segment sales in 1997 were $6.50 billion, an Prescription drugs in the psychotropics field include increase of 2.1% over 1996. Sales by domestic companies RISPERDAL (risperidone), an antipsychotic drug and HALDOL accounted for 49.9% of the total segment, while international (haloperidol). companies accounted for 50.1%. During 1997, the Company Prescription drugs in the pain management field include announced a licensing agreement with Raisio Group in Finland DURAGESIC (fentanyl transdermal system, sold abroad as for the North American marketing rights (as well as a letter of DUROGESIC), a transdermal patch for chronic pain; and intent for the worldwide marketing rights) to a dietary ingredi- ULTRAM (tramadol hydrochloride), an analgesic for moderate ent, stanol ester, which is patented for use in reducing choles- to moderately severe pain. terol. The Company also established an alliance with Takeda On January 24, 2000, the U.S. prescribing information for Chemical Industries in Japan for the sale and distribution of PROPULSID (cisapride) tablets and suspension, a medication OTC products beginning with several forms of TYLENOL brand for the treatment of symptoms of nighttime heartburn in adults acetaminophen products. with gastroesophageal reflux disease (GERD), was revised to include more comprehensive directions to ensure appropriate Pharmaceutical use. The primary revisions to the prescribing information The Pharmaceutical segment’s principal worldwide franchises included a requirement for physicians to conduct certain tests are in the antifungal, anti-infective, cardiovascular, contracep- to identify patients who are not appropriate candidates for tive, dermatology, gastrointestinal, hematology, immunology, PROPULSID therapy. Included also are new contraindicated neurology, oncology, pain management and psychotropic fields. medications such as the class of protease inhibitors, which are These products are distributed both directly and through used to treat AIDS, and new contraindicated medical condi- wholesalers for use by health care professionals and the tions, such as severe dehydration. general public. Johnson & Johnson markets over 100 prescription drugs Prescription drugs in the antifungal field include NIZORAL around the world, with 40.0% of the sales generated outside (ketoconazole), SPORANOX (itraconazole), TERAZOL (tercona- the United States. Thirty-three drugs sold by the Company had zole) and DAKTARIN (miconazole nitrate) antifungal products. 1999 sales in excess of $50 million, with 20 of them in excess of Prescription drugs in the anti-infective field include FLOXIN $100 million. (ofloxacin) and LEVAQUIN (levofloxacin). Pharmaceutical segment sales in 1999 were $10.69 billion, Prescription drugs in the cardiovascular field include an increase of 20.2% over 1998 including 28.6% growth in RETAVASE (reteplase), a recombinant biologic cardiology domestic sales. International sales increased 9.4% as sales care product for the treatment of acute myocardial infarction gains in local currency of 13.5% were offset by a negative cur- to improve blood flow to the heart and REOPRO (abciximab) rency impact of 4.1%. Worldwide growth reflects the strong perfor the treatment of acute cardiac disease. formance of PROCRIT, RISPERDAL, DURAGESIC, LEVAQUIN, Prescription drugs in the contraceptive field include ORTHO- and the oral contraceptive line of products. During the fourth NOVUM (norethindrone/ethinyl estradiol) and TRICILEST quarter, the Company received approval from the FDA for (norgestimate/ethinyl estradiol, sold in the U.S. as ORTHO TRI- ORTHO-PREFEST (17(beta)-estradiol/norgestimate) for hor- CYCLEN) group of oral contraceptives. mone replacement therapy and an additional indication for Prescription drugs in the dermatology field include RETIN-A REMICADE for the treatment of rheumatoid arthritis. MICRO (tretinoin), a dermatological cream for acne. Pharmaceutical segment sales in 1998 were $8.90 billion, an Prescription drugs in the gastrointestinal field include increase of 12.7% over 1997 including 24.3% growth in domestic ACIPHEX (rabeprazole sodium), a proton pump inhibitor for sales. International sales increased .6% as sales gains in local treating erosive gastroesophageal reflux disease (GERD) and currency of 5.4% were offset by a negative currency impact of

27 4.8%. Worldwide growth reflects the strong performance of Suture, a synthetic nonabsorbable monofilament for cardiovas- RISPERDAL, PROCRIT, DURAGESIC, LEVAQUIN, and the oral cular and vascular surgery and SURGIFOAM Absorbable contraceptive line of products. At year-end 1998, the Company Gelatin Sponge USP, which is proven in surgery for over 50 received approval from the FDA for LEVAQUIN (levofloxacin) years in Europe and will give Ethicon a full line of hemostasis for the indication of uncomplicated urinary tract infection. products. Ethicon also received a fourth quarter approval for Additionally, the Company completed the acquisition of the Gynecare’s THERMACHOICE II Uterine Balloon Therapy U.S. and Canadian product rights for RETAVASE (reteplase), System, the latex-free next generation ablation technology sys- an acute-care cardiovascular drug, from Roche Healthcare. tem used for excessive uterine bleeding. RETAVASE is a product administered for the treatment of acute 1998 worldwide sales of $8.57 billion in the Professional seg- myocardial infarction (heart attack) to improve blood flow to ment represented an increase of 1.6% over 1997. Domestic sales the heart. decreased 2.4% while international sales gains in local currency The 1998 special pre-tax charge for the Pharmaceutical seg- of 10.7% were partially offset by the strength of the U.S. dollar. ment was $65 million. See Note 14 for detailed discussion on the During the fourth quarter of 1998, the Company completed the Restructuring and IPR&D charges. acquisition of DePuy, one of the world’s leading orthopaedic Pharmaceutical segment sales in 1997 were $7.90 billion, products companies with products in reconstructive, spinal, an increase of 7.8% over 1996. This growth reflects the strong trauma and sports medicine. The Company also completed the performance of RISPERDAL, PROCRIT, ULTRAM, DURAGESIC, acquisition of FemRx, a leader in the development of propri- and LEVAQUIN, a new anti-infective launched in 1997. At year- etary surgical systems that enable surgeons to perform less end 1997, the Company received approval from the FDA for invasive alternatives to hysterectomy. REGRANEX (becaplermin), the first biologic treatment proven At year-end 1998, two new Cordis products were approved to increase the incidence of healing in diabetic foot ulcers. for marketing by the FDA. The S.M.A.R.T. stent, a self-expand- Significant research activities continued in the Pharma- ing, crush-recoverable nitinol stent was approved for use in ceutical segment, increasing to $1.60 billion in 1999, or a 13.0% treating biliary obstructions. Its nitinol alloy design allows for increase over 1998. This represents 15.0% of 1999 Pharmaceu- precise placement and flexibility in reaching lesions, even tical sales and a compound annual growth rate of approxi- through very tortuous vessels. In addition, the NINJA balloon mately 13.8% for the five-year period since 1994. was approved in the U.S. for use in angioplasty procedures. Pharmaceutical research is led by two worldwide organiza- The 1998 special pre-tax charge for the Professional seg- tions, Janssen Research Foundation, headquartered in Belgium ment for restructuring was $304 million. See Note 14 and Note and the R.W. Johnson Pharmaceutical Research Institute, head- 17 for detailed discussion on Restructuring and IPR&D charges quartered in the United States. Additional research is con- and Acquisitions. ducted through Centocor and collaboration with the James Worldwide sales of $8.44 billion in 1997 in the Professional Black Foundation in London, England. segment represented an increase of 4.5% over 1996. Sales growth continued to be fueled by the excellent performance Professional of Ethicon Endo-Surgery’s minimally invasive surgical instru- The Professional segment includes a broad range of products ments, Johnson & Johnson’s orthopaedics business, Johnson & used by or under the direction of health care professionals. Johnson Vision Care, Inc.’s disposable contact lenses and These would include suture and mechanical wound closure LifeScan’s blood glucose monitoring systems. The Asia-Pacific products, surgical equipment and devices, wound management and Central Europe regions contributed significantly to the and infection prevention products, interventional and diagnos- overall increase in the Professional segment. There were also tic cardiology products, diagnostic equipment and supplies, several business combinations in the Professional segment joint replacements, and disposable contact lenses. These prod- during 1997. These included Biopsys Medical, Inc., a maker of ucts are used principally in the professional fields by physicians, products for the diagnosis and management of breast cancer; nurses, therapists, hospitals, diagnostic laboratories and clinics. Biosense, Inc., a leader in medical sensor technology for use Distribution to these markets is done both directly and through in diagnostic and therapeutic interventional procedures; surgical supply and other dealers. Gynecare, Inc., a maker of minimally invasive medical devices Worldwide sales in 1999 of $9.91 billion in the Professional for the treatment of uterine disorders, and Spectacle Lens segment represented an increase of 15.7% over 1998. Domestic Group, a manufacturer of equipment for high quality prescrip- sales increased 16.9% while international sales gains in local tion eyeglass lenses. currency of 15.7% were partially offset by the strength of the U.S. dollar. Strong sales growth from Ethicon Endo-Surgery’s products for minimally invasive surgery, Ethicon’s MITEK suture anchors and Gynecare’s women’s health products and the effect of the acquisition of DePuy’s orthopaedic products were the primary contributors to the Professional segment growth. In the fourth quarter, Cordis launched the new BX VELOCITY coronary stent in Europe, where it has been well received by the medical community. Ethicon’s new products launched included: PRONOVA Poly (hexafluoropropylene-VDF)

28 Geographic Areas outside the United States and selling in over 175 countries The Company further categorizes its sales by major geographic throughout the world. area as presented for the years 1999 and 1998: In all its product lines, the Company competes with companies both large and small, located in the United States and Sales Increase abroad. Competition is strong in all lines without regard to the (Millions of Dollars) 1999 1998 Amount Percent number and size of the competing companies involved. United States $15,385 12,848 2,537 19.7% Competition in research, involving the development and the Europe 6,711 6,354 357 5.6 improvement of new and existing products and processes, is Western Hemisphere particularly significant and results from time to time in product excluding U.S. 2,023 2,105 (82) (3.9) and process obsolescence. The development of new and Asia-Pacific, Africa 3,352 2,688 664 24.7 improved products is important to the Company’s success in all Worldwide total $27,471 23,995 3,476 14.5% areas of its business. This competitive environment requires substantial investments in continuing research and in multiple International sales were negatively impacted by the translation sales forces. In addition, the winning and retention of customer of local currency operating results into U.S dollars in all regions acceptance of the Company’s consumer products involves heavy except for Asia-Pacific. Average exchange rates to the dollar expenditures for advertising, promotion, and selling. have declined each year since 1995. See Note 12 for additional Cautionary Factors that May Affect Future Results information on geographic areas. This Annual Report contains forward-looking statements that Sales by Geographic Area of Business anticipate results based on management’s plans that are sub- Millions of Dollars ject to uncertainty. Forward-looking statements do not relate strictly to historical or current facts and may be identified by 97 % 52.026.3 9.0 12.7 $22,830 the use of words like “plans,” “expects,” “will,” “anticipates,” 98 % 53.5 26.5 8.8 11.2 $23,995 “estimates” and other words of similar meaning. These statements may address, among other things, the Company’s strat- 99 % 56.0 24.4 7.4 12.2 $27,471 egy for growth, product development, regulatory approval, market position, expenditures and financial results. United States Western Hemisphere excluding U.S. Forward-looking statements are based on current expecta- Europe Asia-Pacific, Africa tions of future events. The Company cannot guarantee that any forward-looking statement will be accurate, although the Description of Business Company believes that it has been reasonable in its expecta- The Company, which employs 97,800 employees worldwide, is tions and assumptions. Investors should realize that if underly- engaged in the manufacture and sale of a broad range of prod- ing assumptions prove inaccurate or that unknown risks or ucts in the health care field. It conducts business in virtually all uncertainties materialize, actual results could vary materially countries of the world. The Company’s primary interest, both from our projections. The Company assumes no obligation to historically and currently, has been in products related to update any forward-looking statements as a result of future human health and well-being. events or developments. The Company is organized on the principle of decentralized The Company’s Annual Report on Form 10-K for the year management. The Executive Committee of Johnson & Johnson ended January 2, 2000, that will be filed in April, 2000, will con- is the principal management group responsible for the opera- tain, as an Exhibit, a discussion of various factors that could tions and allocation of the resources of the Company. In addi- cause actual results to differ from expectations. Prior to that fil- tion, several Executive Committee members serve as Chairmen ing of Form 10-K, investors should reference the Company’s fil- of Group Operating Committees, which are comprised of man- ing on Form 8-K, filed December 14, 1999, in particular, Exhibit agers who represent key operations within the group, as well as 99(b) of the Form 10-K for fiscal year 1998. The Company notes management expertise in other specialized functions. The com- these factors as permitted by the Private Securities Litigation position of these Committees can change over time in response Reform Act of 1995. Investors are cautioned not to place undue to business needs. These Committees oversee and coordinate reliance on any forward-looking statements. Investors also the activities of domestic and international companies related should understand that it is not possible to predict or identify all to each of the Consumer, Pharmaceutical and Professional busi- such factors and should not consider this list to be a complete nesses. Operating management is headed by a Chairman, statement of all potential risks and uncertainties. President, General Manager or Managing Director who reports directly, or through a line executive to a Group Operating Committee. In line with this policy of decentralization, each international subsidiary is, with some exceptions, managed by citizens of the country where it is located. The Company’s international business is conducted by subsidiaries manufacturing in 35 countries

29 Consolidated Balance Sheets Johnson & Johnson and Subsidiaries

At January 2, 2000 and January 3, 1999 (Dollars in Millions) (Note 1) 1999 1998

Assets Current assets Cash and cash equivalents (Notes 1 and 16) $ 2,363 1,994 Marketable securities (Notes 1 and 16) 1,516 789 Accounts receivable trade, less allowances $389 (1998, $388) 4,233 3,752 Inventories (Notes 1 and 2) 3,095 2,898 Deferred taxes on income (Note 8) 1,105 1,183 Prepaid expenses and other receivables 888 870

Total current assets $13,200 11,486

Marketable securities, non-current (Notes 1 and 16) 441 437 Property, plant and equipment, net (Notes 1, 3 and 14) 6,719 6,395 Intangible assets, net (Notes 1, 7 and 14) 7,571 7,364 Deferred taxes on income (Note 8) 104 411 Other assets 1,128 1,199

Total assets $29,163 27,292

Liabilities and Shareowners’ Equity Current liabilities Loans and notes payable (Note 6) $ 1,806 2,753 Accounts payable 2,003 1,877 Accrued liabilities 2,972 3,012 Accrued salaries, wages and commissions 467 445 Taxes on income 206 206

Total current liabilities 7,454 8,293

Long-term debt (Note 6) 2,450 1,729 Deferred tax liability (Note 8) 287 578 Employee related obligations (Note 5) 1,749 1,738 Other liabilities 1,010 877

Shareowners’ equity Preferred stock—without par value (authorized and unissued 2,000,000 shares) —— Common stock—par value $1.00 per share (Note 20) (authorized 2,160,000,000 shares; issued 1,534,916,000 and 1,534,824,000 shares) 1,535 1,535 Note receivable from employee stock ownership plan (Note 15) (41) (44) Accumulated other comprehensive income (Note 11) (396) (322) Retained earnings 16,192 13,968 17,290 15,137 Less: common stock held in treasury, at cost (Note 20) (145,233,000 and 145,560,000) 1,077 1,060

Total shareowners’ equity 16,213 14,077

Total liabilities and shareowners’ equity $29,163 27,292

See Notes to Consolidated Financial Statements

30 Consolidated Statements of Earnings Johnson & Johnson and Subsidiaries

(Dollars in Millions Except Per Share Figures) (Note 1) 1999 1998 1997

Sales to customers $27,471 23,995 22,830

Cost of products sold (1998 includes $60 of inventory write-offs for restructuring) 8,442 7,604 7,230

Gross proﬁt 19,029 16,391 15,600

Selling, marketing and administrative expenses 10,503 9,027 8,756 Research expense 2,600 2,336 2,209 Purchased in-process research and development (Notes 14 and 17) — 298 — Interest income (246) (277) (213) Interest expense, net of portion capitalized (Note 3) 197 129 124 Other expense, net 222 143 137 Restructuring charge (Note 14) — 553 — 13,276 12,209 11,013 Earnings before provision for taxes on income 5,753 4,182 4,587 Provision for taxes on income (Note 8) 1,586 1,179 1,276

Net earnings $ 4,167 3,003 3,311

Basic net earnings per share (Notes 1 and 19) $ 3.00 2.16 2.40

Diluted net earnings per share (Notes 1 and 19) $ 2.94 2.12 2.34

See Notes to Consolidated Financial Statements

31 Consolidated Statements of Equity Johnson & Johnson and Subsidiaries

Note Receivable Accumulated Common From Employee Other Stock Treasury Comprehensive Retained Stock Ownership Comprehensive Issued Stock (Dollars in Millions) (Note 1) Total Income Earnings Plan (ESOP) Income Amount Amount

Balance, December 29, 1996 $ 11,324 11,043 (57) (43) 1,535 (1,154) Net earnings 3,311 3,311 3,311 Cash dividends paid (1,137) (1,137) Employee compensation and stock option plans 300 (358) 658 Repurchase of common stock (628) (628) Business combinations 17 (112) 129 Other comprehensive income, net of tax: Currency translation adjustment (294) (294) (294) Unrealized gains (losses) on securities (33) (33) (33)

Total comprehensive income 2,984

Note receivable from ESOP 66 Balance, December 28, 1997 $ 12,866 12,747 (51) (370) 1,535 (995) Net earnings 3,003 3,003 3,003 Cash dividends paid (1,305) (1,305) Employee compensation and stock option plans 378 (484) 862 Repurchase of common stock (930) (930) Business combinations 10 7 3 Other comprehensive income, net of tax: Currency translation adjustment 89 89 89 Unrealized gains (losses) on securities (41) (41) (41) Reclassiﬁcation adjustment 33

Total comprehensive income 3,084

Note receivable from ESOP 77 Balance, January 3, 1999 $ 14,077 13,968 (44) (322) 1,535 (1,060) Net earnings 4,167 4,167 4,167 Cash dividends paid (1,479) (1,479) Employee compensation and stock option plans 357 (464) 821 Repurchase of common stock (840) (840) Business combinations 2 2 Other comprehensive income, net of tax: Currency translation adjustment (155) (155) (155) Unrealized gains (losses) on securities 81 81 81 Reclassiﬁcation adjustment 17

Total comprehensive income 4,110

Note receivable from ESOP 33

Balance, January 2, 2000 $ 16,213 16,192 (41) (396) 1,535 (1,077)

See Notes to Consolidated Financial Statements

32 Consolidated Statements of Cash Flows Johnson & Johnson and Subsidiaries

(Dollars in Millions) (Note 1) 1999 1998 1997 Cash ﬂows from operating activities Net earnings $ 4,167 3,003 3,311 Adjustments to reconcile net earnings to cash ﬂows: Depreciation and amortization of property and intangibles 1,444 1,285 1,082 Increase in deferred taxes (7) (297) (132) Accounts receivable reserves 11 24 61 Purchased in-process research and development — 298 — Changes in assets and liabilities, net of effects from acquisition of businesses: Increase in accounts receivable (671) (163) (380) Increase in inventories (333) (100) (180) Increase in accounts payable and accrued liabilities 242 646 487 Decrease in other current and non-current assets 457 142 26 Increase in other current and non-current liabilities 367 57 121

Net cash ﬂows from operating activities 5,677 4,895 4,396

Cash ﬂows from investing activities Additions to property, plant and equipment (1,728) (1,545) (1,415) Proceeds from the disposal of assets 35 108 72 Acquisition of businesses, net of cash acquired (Note 17) (271) (3,818) (180) Purchases of investments (3,538) (1,005) (151) Sales of investments 2,817 400 215 Other (257) (205) (186)

Net cash used by investing activities (2,942) (6,065) (1,645)

Cash ﬂows from ﬁnancing activities

Dividends to shareowners (1,479) (1,305) (1,137) Repurchase of common stock (840) (930) (628) Proceeds from short-term debt 9,861 2,424 300 Retirement of short-term debt (10,716) (226) (182) Proceeds from long-term debt 793 535 7 Retirement of long-term debt (176) (471) (504) Proceeds from the exercise of stock options 263 274 234

Net cash (used by) provided by ﬁnancing activities (2,294) 301 (1,910)

Effect of exchange rate changes on cash and cash equivalents (72) 24 (69) Increase (decrease) in cash and cash equivalents 369 (845) 772 Cash and cash equivalents, beginning of year (Note 1) 1,994 2,839 2,067

Cash and cash equivalents, end of year (Note 1) $ 2,363 1,994 2,839

Supplemental cash ﬂow data Cash paid during the year for: Interest, net of portion capitalized $ 185 102 95 Income taxes 1,406 1,310 1,431

Supplemental schedule of noncash investing and ﬁnancing activities Treasury stock issued for employee compensation and stock option plans, net of cash proceeds $ 592 621 451

Acquisitions of businesses Fair value of assets acquired $ 271 4,659 184 Fair value of liabilities assumed (including $296 of assumed debt in 1998) — (545) (4)

Net purchase price $ 271 4,114 180

See Notes to Consolidated Financial Statements

33 Notes to Consolidated Financial Statements

1 Summary of Significant Accounting Principles Financial Instruments Gains and losses on foreign currency hedges of existing assets Basis of Presentation or liabilities, or hedges of firm commitments, are deferred and The consolidated financial statements of Johnson & Johnson recognized in income as part of the related transaction. have been prepared to give retroactive effect to the merger with Unrealized gains and losses on currency swaps which hedge Centocor on October 6, 1999. third party debt are classified in the balance sheet as other Principles of Consolidation assets or liabilities. Interest expense under these agreements, The financial statements include the accounts of Johnson & and the respective debt instrument that they hedge, are recorded Johnson and subsidiaries. Intercompany accounts and transac- at the net effective interest rate of the hedge transaction. tions are eliminated. In the event of early termination of a currency swap contract that hedges third party debt, the gain or loss on the swap Cash Equivalents contract is amortized over the remaining life of the related The Company considers securities with maturities of three transaction. If the underlying transaction associated with a months or less, when purchased, to be cash equivalents. swap, or other derivative contract, is accounted for as a hedge Investments and is terminated early, the related derivative contract is Short-term marketable securities are carried at cost, which terminated simultaneously and any gains or losses would be approximates fair value. Long-term debt securities that the included in income immediately. Company has the ability and intent to hold until maturity are Advertising carried at amortized cost which also approximates fair value. Costs associated with advertising are expensed in the year Equity investments classified as available for sale are carried at incurred. Advertising expenses worldwide, which are com- estimated fair value with unrealized gains and losses recorded prised of television, radio, print media as well as Internet as a component of shareowners’ equity. Additionally, gross advertising were $1.39 billion in 1999, $1.19 billion in 1998 and unrealized holding gains and losses are not material. Manage- $1.26 billion in 1997. ment determines the appropriate classification of its investments in debt and equity securities at the time of purchase and Income Taxes re-evaluates such determination at each balance sheet date. The Company intends to continue to reinvest its undistributed international earnings to expand its international operations; Property, Plant and Equipment and Depreciation therefore no tax has been provided to cover the repatriation of Property, plant and equipment are stated at cost. The Company such undistributed earnings. At January 2, 2000, and January 3, utilizes the straight-line method of depreciation over the esti- 1999 the cumulative amount of undistributed international mated useful lives of the assets: earnings was approximately $8.3 billion and $7.0 billion, Buildings and building equipment 20-40 years respectively. Land and land improvements 10-20 years Net Earnings Per Share Machinery and equipment 2-13 years Basic earnings per share is computed by dividing net income Revenue Recognition available to common shareowners by the weighted average The Company recognizes revenue from product sales when the number of common shares outstanding for the period. Diluted goods are shipped and title passes to the customer. earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock Inventories were exercised or converted into common stock. Inventories are stated at the lower of cost or market determined by the first-in, first-out method. Risks and Uncertainties The preparation of consolidated financial statements in confor- Intangible Assets mity with accounting principles generally accepted in the The excess of the cost over the fair value of net assets of pur- United States requires management to make estimates and chased businesses is recorded as goodwill and is amortized on assumptions that affect the amounts reported. Actual results a straight-line basis over periods of 40 years or less. The cost are not expected to differ materially from those estimates. of other acquired intangibles is amortized on a straight-line basis over their estimated useful lives. The Company continu- Annual Closing Date ally evaluates the carrying value of goodwill and other intangi- The Company follows the concept of a fiscal year which ends ble assets. Any impairments would be recognized when the on the Sunday nearest to the end of the month of December. expected future operating cash flows derived from such intan- Normally each fiscal year consists of 52 weeks, but every five gible assets is less than their carrying value. or six years, as was the case in 1998, the fiscal year consists of 53 weeks. Reclassification Certain prior year amounts have been reclassified to conform with current year presentation.

34 2 Inventories 6 Borrowings At the end of 1999 and 1998, inventories were comprised of: The components of long-term debt are as follows:

(Dollars in Millions) 1999 1998 Eff. Eff. Raw materials and supplies $ 663 776 (Dollars in Millions) 1999 Rate 1998 Rate Goods in process 416 510 4.75% Convertible Finished goods 2,016 1,612 Subordinated Debentures due 2005(2) $ 460 4.75% 460 4.75% $3,095 2,898 8.72% Debentures due 2024 300 8.72 300 8.72 3 Property, Plant and Equipment 6.95% Notes due 2029 293 7.14 —— At the end of 1999 and 1998, property, plant and equipment at 6.73% Debentures cost and accumulated depreciation were: due 2023 250 6.73 250 6.73 (Dollars in Millions) 1999 1998 6% Eurodollar due 2001 250 6.02 —— Land and land improvements $ 586 466 7.375% Notes due 2002 199 7.49 199 7.49 Buildings and building equipment 3,087 2,991 8.25% Eurodollar Notes Machinery and equipment 5,936 5,686 due 2004 199 8.37 199 8.37 6.625% Notes due 2009 197 6.80 —— Construction in progress 1,437 1,126 5% Deutsche Mark Notes 11,046 10,269 due 2001(3) 93 1.98 107 1.98 Less accumulated depreciation 4,327 3,874 5.12% Notes due 2003(4) 60 0.82 60 0.82 $ 6,719 6,395 Industrial Revenue Bonds 47 5.78 50 5.28 Other, principally The Company capitalizes interest expense as part of the cost of international 128 — 139 — construction of facilities and equipment. Interest expense capi- 2,476 6.42(1) 1,764 6.25(1) talized in 1999, 1998 and 1997 was $81, $72 and $40 million, Less current portion 26 35 respectively. $2,450 1,729 Upon retirement or other disposal of fixed assets, the cost and related amount of accumulated depreciation or amortiza- (1) Weighted average effective rate. tion are eliminated from the asset and reserve accounts, (2) Represents 4.75% convertible subordinated debt issued by Centocor prior respectively. The difference, if any, between the net asset value to the merger with Johnson & Johnson. The debentures are convertible by the holders into approximately 5,987,000 shares of Johnson & Johnson stock at and the proceeds is adjusted to income. For additional discus- a conversion price of $77.091 per share. After February 21, 2001 the debentures will be redeemable at the option of the Company. These bonds are due sion on property, plant and equipment, see Note 14. February 2005. (3) Represents 5% Deutsche Mark notes due 2001 issued by a Japanese sub- 4 Rental Expense and Lease Commitments sidiary and converted to a 1.98% fixed rate yen note via an interest rate and Rentals of space, vehicles, manufacturing equipment and currency swap. office and data processing equipment under operating leases (4) Represents 5.12% U.S. Dollar notes due 2003 issued by a Japanese subsidiary and converted to a 0.82% fixed rate yen note via an interest rate and amounted to approximately $233 million in 1999, $243 million currency swap. in 1998 and $238 million in 1997. The Company has access to substantial sources of funds at The approximate minimum rental payments required under numerous banks worldwide. Total unused credit available to operating leases that have initial or remaining noncancellable the Company approximates $3.0 billion, including $1.2 billion of lease terms in excess of one year at January 2, 2000 are: credit commitments with various worldwide banks, $800 mil- After lion of which expire on September 29, 2000 and $400 million (Dollars in Millions) 2000 2001 2002 2003 2004 2004 Total on October 6, 2004. Interest charged on borrowings under the $ 85 71 56 46 30 62 350 credit line agreements is based on either bids provided by the banks, the prime rate or London Interbank Offered Rates Commitments under capital leases are not significant. (LIBOR), plus applicable margins. Commitment fees under the 5 Employee Related Obligations agreement are not material. At the end of 1999 and 1998, employee related obligations were: The Company’s shelf registration filed with the Securities and Exchange Commission enables the Company to issue up to $2.59 (Dollars in Millions) 1999 1998 billion of unsecured debt securities, and warrants to purchase Post retirement benefits $ 805 767 debt securities, under its medium term note (MTN) program. In Post employment benefits 111 144 1999, the Company issued a total of $500 million notes from the Unfunded pension liabilities 647 677 shelf registration: $200 million of 6.625% notes due 2009 and Certificates of extra compensation 186 150 $300 million of 6.95% notes due 2029. At January 2, 2000 the Employee related obligations $1,749 1,738 Company had $1.79 billion remaining on its shelf registration.

35 In addition to the notes issued under the shelf registration, applicable to future years, to differences between the financial the Company issued $250 million, 6.0% Eurodollar notes due in reporting and the tax basis of existing assets and liabilities. 2001. The proceeds of all new borrowings were used for general Temporary differences and carryforwards for 1999 are as corporate purposes. follows: Short-term borrowings and current portion of long-term Deferred Tax debt amounted to $1.8 billion at the end of 1999. These bor- (Dollars in Millions) Asset Liability rowings are composed of $1.4 billion U.S. commercial paper, at Employee benefit obligations $449 an average rate of 5.7% and $0.4 billion of local borrowings, Depreciation (327) principally by international subsidiaries. Non-deductible intangibles (694) Aggregate maturities of long-term obligations for each of International R&D capitalized for tax 45 the next five years commencing in 2000 are: Reserves & liabilities 587 After Income reported for tax purposes 156 (Dollars in Millions) 2000 2001 2002 2003 2004 2004 Miscellaneous international 266 (155) $ 26 403 216 72 215 1,544 Loss carryforwards 209 Miscellaneous U.S. 317 7 Intangible Assets Total deferred income taxes $2,029 (1,176) At the end of 1999 and 1998, the gross and net amounts of intangible assets were: The difference between the net deferred tax on income per (Dollars in Millions) 1999 1998 the balance sheet and the net deferred tax is reflected in Goodwill—gross $4,270 4,151 Taxes on Income. Less accumulated amortization 424 331 A comparison of income tax expense at the federal statu- Goodwill—net $3,846 3,820 tory rate of 35% in 1999, 1998 and 1997, to the Company’s effective tax rate is as follows:

Patents and trademarks—gross $2,014 1,760 (Dollars in Millions) 1999 1998 1997 Less accumulated amortization 399 351 U.S. $ 3,241 2,522 2,853 Patents & trademarks—net $1,615 1,409 International 2,512 1,660 1,734

Other intangibles—gross $2,471 2,296 Earnings before taxes Less accumulated amortization 361 161 on income: $ 5,753 4,182 4,587 Other intangibles—net $2,110 2,135 Statutory taxes $ 2,014 1,464 1,605 Tax rates: Total intangible assets—gross $8,755 8,207 Statutory 35.0% 35.0% 35.0% Less accumulated amortization 1,184 843 Puerto Rico and Total intangible assets—net $7,571 7,364 Ireland operations (5.5) (5.5) (5.7) Research tax credits (0.6) (0.3) (0.3) The weighted average amortization periods for goodwill, Domestic state and local 0.9 1.0 1.0 patents and trademarks and other intangibles are 32 years, 21 International years and 18 years, respectively. For additional discussion on subsidiaries intangible assets, see Note 14. excluding Ireland (2.4) (3.3) (2.7) IPR&D — 1.3 — 8 Income Taxes All other 0.2 — 0.5 The provision for taxes on income consists of: Effective tax rate 27.6% 28.2% 27.8% (Dollars in Millions) 1999 1998 1997 Currently payable: The reduction in the 1999 worldwide effective tax rate is pri- U.S. taxes $ 994 991 953 marily due to the Company’s non-deductible IPR&D charge International taxes 599 485 455 taken in connection with the acquisition of DePuy in 1998. 1,593 1,476 1,408 During 1999, the Company had subsidiaries operating in Puerto Rico under a tax incentive grant expiring December 31, Deferred: 2007. In addition, the Company has subsidiaries manufacturing U.S. taxes 94 (180) (126) in Ireland under an incentive tax rate effective through the International taxes (101) (117) (6) year 2010. (7) (297) (132) 9 International Currency Translation $ 1,586 1,179 1,276 For translation of its international currencies, the Company has determined that the local currencies of its international sub- Deferred income taxes are recognized for tax consequences of sidiaries are the functional currencies except those in highly “temporary differences” by applying enacted statutory tax rates, inﬂationary economies, which are deﬁned as those which have

36 had compound cumulative rates of inflation of 100% or more the fair value method been applied, net income would have during the past three years. been reduced by $116 million or $.08 per share in 1999 and In consolidating international subsidiaries, balance sheet cur- $77 million or $.05 per share in 1998. In 1997, net income would rency effects are recorded as a separate component of shareown- have been reduced by $35 million or $.02 per share. These calcu- ers’ equity. This equity account includes the results of translating lations only take into account the options issued since January 1, all balance sheet assets and liabilities at current exchange rates, 1995. The average fair value of options granted was $30.00 in except for those located in highly inflationary economies which 1999, $19.62 in 1998 and $17.50 in 1997. The fair value was esti- are reflected in operating results. mated using the Black-Scholes option pricing model based on the An analysis of the changes during 1999 and 1998 for foreign weighted average assumptions of: currency translation adjustments is included in Note 11. 1999 1998 1997 Net currency transaction and translation gains and losses Risk-free rate 6.32% 4.52% 5.89% were after-tax losses of $48 million in 1999, after-tax losses of Volatility 24.0% 22.0% 21.5% $15 million in 1998 and after-tax losses of $27 million in 1997. Expected life 5.0 yrs 5.0 yrS 5.3 yrs 10 Common Stock, Stock Option Plans and Stock Dividend yield 1.13% 1.30% 1.43% Compensation Agreements The following table summarizes stock options outstanding and At January 2, 2000 the Company had 12 stock-based compen- exercisable at January 2, 2000: sation plans. Under the 1995 Employee Stock Option Plan, the Company may grant options to its employees for up to 56 mil- (Shares in Thousands) Outstanding Exercisable Average Average lion shares of common stock. The shares outstanding are for Exercise Average Exercise Exercise contracts under the Company’s 1986, 1991 and 1995 Employee Price Range Options Life(a) Price Options Price Stock Option Plans, the 1997 Non-Employee Directors’ Plan $8.00-$25.99 20,256 3.0 $22.05 20,198 $22.06 and the Mitek, Cordis, Biosense, Gynecare and Centocor Stock $26.02-$50.94 19,858 5.5 37.42 12,649 36.16 Option plans. $51.22-$75.53 18,583 7.6 60.07 4,131 55.90 Stock options expire 10 years from the date they are granted $76.09-$104.41 21,854 9.4 91.29 294 83.06 and vest over service periods that range from one to six years. $8.00-$104.41 80,551 6.4 $53.40 37,272 $31.07 All options granted are valued at current market price. Shares available for future grants amounted to 3.0 million, 15.0 million (a) Average contractual life remaining in years. and 22.7 million at the end of 1999, 1998 and 1997, respectively. A summary of the status of the Company’s stock option 11 Accumulated Other Comprehensive Income plans as of January 2, 2000, January 3, 1999 and December Components of other comprehensive income/(loss) consist of 28, 1997 and changes during the years ending on those dates, the following: Accumulated is presented below: Foreign Unrealized Other Weighted Currency Gains/(Losses) Comprehensive Options Average (Dollars in Millions) Translation on Securities Income/(Loss) (Shares in Thousands) Outstanding Exercise Price December 29, 1996 $ (117) 74 (43) Balance at December 29, 1996 81,605 27.99 1997 change (294) (33) (327) Options granted 13,053 60.40 Options exercised (11,157) 16.76 December 28, 1997 (411) 41 (370) Options cancelled/forfeited (2,240) 36.44 1998 change 89 (41) 48 Balance at December 28, 1997 81,261 34.51 January 3, 1999 (322) — (322) Options granted 10,852 78.20 1999 change (155) 81 (74) Options exercised (11,414) 18.65 January 2, 2000 $ (477) 81 (396) Options cancelled/forfeited (2,304) 44.92 Balance at January 3, 1999 78,395 42.55 The change in unrealized gains/(losses) on marketable securi- Options granted 13,113 97.87 ties during 1999 and 1998 includes reclassification adjust- Options exercised (9,235) 23.84 ments of $27 million and $48 million of losses realized from Options cancelled/forfeited (1,722) 55.53 the write-down of marketable securities and the associated tax benefits of $10 million and $15 million. The tax effect on Balance at January 2, 2000 80,551 53.40 these unrealized gains/(losses) on marketable securities is an expense of $50 million in 1999 and benefits of $19 million and The Company applies the provision of Financial Accounting Stan- $21 million in 1998 and 1997, respectively. dards No. 123, “Accounting for Stock-Based Compensation,” that The currency translation adjustments are not currently calls for companies to measure employee stock compensation adjusted for income taxes as they relate to indefinite invest- expense based on the fair value method of accounting. However, ments in non-US subsidiaries. as allowed by the Statement, the Company elected continued use of Accounting Principle Board (APB) Opinion No. 25, “Accounting 12 Segments of Business and Geographic Areas for Stock Issued to Employees,” with pro forma disclosure of net See page 45 for information on segments of business and geo- income and earnings per share determined as if the fair value graphic areas. method had been applied in measuring compensation cost. Had

37 13 Retirement and Pension Plans In certain countries other than the United States, the funding The Company sponsors various retirement and pension plans, of pension plans is not a common practice as funding provides including defined benefit, defined contribution and termination no economic benefit. Consequently, the Company has several indemnity plans, which cover most employees worldwide. The pension plans which are not funded. Company also provides postretirement benefits, primarily health The Company does not fund retiree health care benefits in care to all domestic retired employees and their dependents. advance and has the right to modify these plans in the future. Most international employees are covered by government- Effective December 29, 1997, the Company adopted State- sponsored programs and the cost to the Company is not ment of Financial Accounting Standards SFAS No. 132, significant. “Employers’ Disclosures about Pensions and Postretirement Retirement plan benefits are primarily based on the Benefits” (SFAS 132) which standardizes the disclosure employee’s compensation during the last three to five years requirements for pensions and other postretirement benefits. before retirement and the number of years of service. The Com- The Statement addresses disclosure only. It does not address pany’s objective in funding its domestic plans is to accumulate liability measurement or expense recognition. There was funds sufficient to provide for all accrued benefits. International no effect on financial position or net income as a result of subsidiaries have plans under which funds are deposited with adopting SFAS 132. trustees, annuities are purchased under group contracts, or Net periodic benefit costs for the Company’s defined benefit reserves are provided. retirement plans and other benefit plans for 1999, 1998 and 1997 include the following components: Retirement Plans Other Benefit Plans

(Dollars in Millions) 1999 1998 1997 1999 1998 1997 Service cost $ 208 185 166 24 20 17 Interest cost 270 254 239 50 50 46 Expected return on plan assets (330) (291) (256) (5) (14) (3) Amortization of prior service cost 17 17 16 (1) 2 1 Amortization of net transition asset (12) (14) (13) ——— Recognized actuarial (gain)/loss (17) (24) (19) (2) 8 (6) Curtailments and settlements 221 ——— Net periodic beneﬁt cost $ 138 129 134 66 66 55

The net periodic cost attributable to domestic retirement plans included above was $56 million in 1999, $40 million in 1998, and $50 million in 1997. The following tables provide the weighted-average assumptions used to develop net periodic benefit cost and the actuarial present value of projected benefit obligations: Retirement Plans Other Benefit Plans Domestic Benefit Plans 1999 1998 1997 1999 1998 1997 Weighted average discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25% Expected long-term rate of return on plan assets 9.00 9.00 9.00 9.00 9.00 9.00 Rate of increase in compensation levels 5.00 5.00 5.00 5.00 5.00 5.00 International Benefit Plans Weighted average discount rate 5.75% 5.50% 6.25% 6.75% 6.00% 7.00% Expected long-term rate of return on plan assets 7.50 7.75 7.75 ——— Rate of increase in compensation levels 3.50 3.50 4.25 4.50 4.25 5.00

Health care cost trends are projected at annual rates grading from 10% for employees under age 65 and 7% for employees over age 65 down to 5% for both groups by the year 2008 and beyond. The effect of a 1% change in these assumed cost trends on the accumulated postretirement beneﬁt obligation at the end of 1999 would be an $83 million increase or a $75 million decrease and the effect on the service and interest cost components of the net periodic postretirement beneﬁt cost for 1999 would be an $11 million increase or a $10 million decrease.

38 The following tables set forth the change in benefit obligations and change in plan assets at year-end 1999 and 1998 for the Company’s defined benefit retirement plans and other postretirement plans:

(Dollars in Millions) Retirement Plans Other Benefit Plans Change in Benefit Obligation 1999 1998 1999 1998 Benefit obligation—beginning of year $ 4,315 3,704 726 691 Service cost 208 185 24 20 Interest cost 270 254 50 50 Plan participant contributions 11 11 —— Amendments 81 13 —— Actuarial (gain) loss (346) 325 (81) — Acquisitions 51 —11— Curtailments & settlements (7) (7) —— Total benefits paid (210) (203) (36) (33) Effect of exchange rates (167) 33 — (2)

Beneﬁt obligation—end of year $ 4,206 4,315 694 726

Change in Plan Assets Plan assets at fair value—beginning of year $ 4,173 3,694 57 46 Actual return on plan assets 1,301 606 8 14 Company contributions 46 45 32 29 Plan participant contributions 11 11 —— Acquisitions 41 (4) —— Beneﬁts paid from plan assets (198) (193) (35) (32) Effect of exchange rates (120) 14 ——

Plan assets at fair value—end of year $ 5,254 4,173 62 57

Amounts recognized in the Company’s balance sheet consist of the following: Retirement Plans Other Beneﬁt Plans

(Dollars in Millions) 1999 1998 1999 1998 Plan assets in excess of (less than) projected beneﬁt obligation $ 1,048 (142) (632) (668) Unrecognized actuarial gains (1,801) (511) (200) (117) Unrecognized prior service cost 156 98 (9) (11) Unrecognized net transition asset (29) (37) ——

Total recognized in the consolidated balance sheet $ (626) (592) (841) (796)

Book reserves $ (775) (726) (841) (796) Prepaid beneﬁts 120 109 — — Other assets 29 25 — —

Total recognized in consolidated balance sheet $ (626) (592) (841) (796)

Plans with accumulated beneﬁt obligations in excess of plan assets consist of the following: Retirement Plans Other Beneﬁt Plans

(Dollars in Millions) 1999 1998 1999 1998 Accumulated beneﬁt obligation $ (411) (558) (696) (696) Projected beneﬁt obligation $ (528) (723) — — Plan assets at fair value $ 53 162 62 57

39 14 Restructuring and In-Process Research and ment (IPR&D) in the amount of $298 million related primarily to Development Charges the DePuy and RETAVASE acquisitions. The value of the IPR&D In the fourth quarter of 1998, the Company approved a plan to projects was calculated with the assistance of third party apprais- reconfigure its global network of manufacturing and operating ers and was based on the estimated percentage completion of the facilities with the objective of enhancing operating efficiencies. various research and development projects being pursued using It was originally expected that the plan would be completed cash flow projections discounted for the risk inherent in such pro- over the following 18 months. This plan is currently underway jects. For additional discussion on acquisitions, see Note 17. and is targeted for completion in 2000. Among the initiatives The 1998 special charges impacted the business segments as supporting this plan were the closure of inefficient manufac- follows: the special pre-tax charge for the Consumer segment was turing facilities, exiting certain businesses which were not $244 million. This charge reflects $85 million for severance costs providing an acceptable return and related employee separa- associated with the termination of approximately 2,550 employ- tions. The closure of these facilities represented approximately ees; $133 million for the write-down of impaired assets and $26 10% of the Company’s manufacturing capacity. million for other exit costs. Acquisitions within the Pharmaceuti- The estimated cost of this plan is $613 million which has cal business segment resulted in a $134 million write-off of pur- been reflected in cost of sales ($60 million) and restructuring chased IPR&D. Additionally, the Pharmaceutical business segment charge ($553 million). The charge consisted of employee sepa- recorded $65 million of the special charge representing $18 mil- ration costs of $161 million, asset impairments of $322 million, lion for severance costs associated with the termination of impairments of intangibles of $52 million, and other exit costs approximately 250 employees and $47 million for the write-down of $78 million. Employee separations will occur primarily in of impaired assets. Acquisitions within the Professional business manufacturing and operations facilities affected by the plan. segment resulted in a $164 million write-off of purchased IPR&D. The decision to exit certain facilities and businesses decreased Additionally, the Professional business segment recorded other cash flows triggering the asset impairment. The amount of special charges of $304 million. This charge included $58 million impairment of such assets was calculated using discounted for severance costs associated with the termination of approxi- cash flows or appraisals. mately 2,300 employees; $194 million for the write-down of The asset impairments that amounted to $322 million con- impaired assets and $52 million for other exit costs. sisted of the following: machinery & equipment of $215 million, 15 Savings Plan inventory of $60 million, buildings of $32 million and leasehold The Company has voluntary 401(k) savings plans designed to improvements of $15 million. Intangible assets of $52 million enhance the existing retirement programs covering eligible included Menlo Care of $26 million, Innotech of $20 million and employees. The Company matches a percentage of each other intangible assets of $6 million. The Menlo Care intangible employee’s contributions consistent with the provisions of the asset was related to the Aquavene biomaterial technology that plan for which he/she is eligible. was no longer in use with all other intangible assets related to In the U.S. salaried plan, one-third of the Company match is products that were abandoned by the Company due to low mar- paid in Company stock under an employee stock ownership gin and/or lack of strategic fit. plan (ESOP). In 1990, to establish the ESOP, the Company Of the separation costs of $161 million, $3 million were paid loaned $100 million to the ESOP Trust to purchase shares of at year-end 1998. These charges as well as the other exit costs the Company stock on the open market. In exchange, the Com- consisted of the following: pany received a note, the balance of which is recorded as a 1999 reduction of shareowners’ equity. Beginning 1999 Remaining (Dollars in Millions) Accrual Cash Outlays Accrual Total contributions to the plans were $70 million in 1999, Restructuring charges: $65 million in 1998, and $59 million in 1997. Employee separations $ 158 58 100 16 Financial Instruments Other exit costs: Derivative Financial Instrument Risk Distributor terminations 17 6 11 The Company uses derivative financial instruments to manage Disposal costs 15 5 10 the impact of interest rate and foreign exchange rate changes Lease terminations 21 14 7 on earnings and cash flows. The Company does not enter into Customer compensation 11 10 1 financial instruments for trading or speculative purposes. Other costs 14 3 11 The Company has a policy of only entering into contracts Total other exit costs 78 38 40 with parties that have at least an “A” (or equivalent) credit rat- $ 236 96 140 ing. The counterparties to these contracts are major financial institutions and the Company does not have significant expo- The restructuring plan consisted of the reduction of manu- sure to any one counterparty. Management believes the risk of facturing facilities around the world by 36, from 159 to 123 loss is remote. plants. None of the assets affected by this plan were held for disposal. The headcount reduction for the years ended Janu- Interest Rate and Foreign Exchange Risk Management ary 2, 2000 and January 3, 1999 was approximately 1,600 and The Company uses interest rate and currency swaps to man- 225 employees, respectively. age interest rate and currency risk primarily related to bor- In connection with the businesses acquired in 1998, the Com- pany recognized charges for in-process research and develop-

40 rowings. Interest rate and currency swap agreements that were exchanged for approximately 45 million shares of hedge third party debt mature with these borrowings and are Johnson & Johnson common stock. On a diluted basis when described in Note 6. adjusted for stock options outstanding and convertible debt, The Company enters into forward foreign exchange the total number of Johnson & Johnson shares issued total contracts maturing within five years to protect the value of approximately 53 million shares. Holders of Centocor common existing foreign currency assets and liabilities and to hedge stock received 0.6390 of a share of Johnson & Johnson com- future foreign currency product costs. The Company has mon stock for each share of Centocor common stock, valued at forward exchange contracts outstanding at year-end in various $95.47 per share. currencies, principally in U.S. Dollars, Euros and Swiss Francs. Centocor is a leading biopharmaceutical company that cre- In addition, the Company has currency swaps outstanding, ates, acquires and markets cost-effective therapies that yield principally in U.S. Dollars and Euros. Unrealized gains and long term benefits for patients and the health care community. losses, based on dealer quoted market prices, are presented Its products, developed primarily through monoclonal anti- in the following table: body technology, help physicians deliver innovative treatments 1999 to improve human health and restore patients’ quality of life. As described in Note 1, these financial statements have Notional been restated to give effect to Johnson & Johnson’s merger (Dollars in Millions) Amounts Gains Losses with Centocor. The only adjustment to Centocor’s historical Forwards $ 5,941 104 170 financial statements has been the inclusion of the effect of Currency swaps 3,465 161 66 income taxes as if the companies had been combined for all Fair Value of Financial Instruments periods presented. For 1999, 1998 and 1997, the revenue and The carrying amount of cash and cash equivalents and cur- net earnings/(losses) of Centocor combined with Johnson & rent and non-current marketable securities approximates fair Johnson are $462, $338 and $201 million, respectively, value of these instruments. In addition, the carrying amount of for revenue and $9, ($57) and $8 million, respectively, of long-term investments, long-term debt, interest rate and cur- earnings/(losses). rency swaps (used to hedge third party debt) approximates During 1999 and 1998 certain businesses were acquired for fair value of these instruments for 1999 and 1998. $271 million and $4.1 billion respectively. These acquisitions The fair value of current and non-current marketable secu- were accounted for by the purchase method and accordingly rities, long-term debt and interest rate and currency swap the results of operations of the acquired businesses have agreements was estimated based on quotes obtained from been included in the accompanying consolidated financial brokers for those or similar instruments. The fair value of statements from their respective dates of acquisition. long-term investments was estimated based on quoted market The 1999 acquisitions included AVEENO, the dermatological prices at year-end. skin care business from S.C. Johnson, ANGIOGUARD, Inc., a developer of an embolic containment device used during inter- Concentration of Credit Risk ventional procedures, certain assets of Cygnus’ drug delivery The Company invests its excess cash in both deposits with major business, certain assets of Medscand related to the TVT incon- banks throughout the world and other high quality short-term tinence product and the stock of Horizon Health Services, Inc., liquid money market instruments (commercial paper, govern- a company specializing in the management of ambulatory ment and government agency notes and bills, etc.). The Com- surgery centers. pany has a policy of making investments only with commercial The excess of purchase price over the estimated fair mar- institutions that have at least an “A” (or equivalent) credit rating. ket value of 1999 acquisitions amounted to $266 million. This These investments generally mature within six months and the amount has been allocated to identifiable intangibles and Company has not incurred any related losses. goodwill. Pro forma information is not provided for 1999, The Company sells a broad range of products in the health as the impact of the acquisitions does not have a material care field in most countries of the world. Concentrations of effect on the Company’s results of operations, cash flows or credit risk with respect to trade receivables are limited due to financial position. the large number of customers comprising the Company’s cus- During 1999, the plan to integrate the DePuy business tomer base. Ongoing credit evaluations of customers’ financial acquired in 1998 into the Company’s operations was com- condition are performed and, generally, no collateral is pleted and resulted in additional liabilities of $81 million to required. The Company maintains reserves for potential credit address costs relating to distributor terminations, employee losses and such losses, in the aggregate, have not exceeded separations and plant consolidations. At year-end 1999, $37 management’s expectations. million of these liabilities remained. 17 Mergers & Acquisitions The 1998 acquisitions included DePuy, Inc., a leading On October 6, 1999, Johnson & Johnson and Centocor, Inc. orthopaedics company. DePuy’s product lines include recon- completed a merger between the two companies. This trans- structive products (implants for hips, knees and extremities), action was accounted for by the pooling-of-interests method spinal implants, trauma repair and sports-related injury of accounting. Centocor had approximately 71 million shares products. Additionally, the Company completed the acquisi- outstanding (83 million shares on a fully diluted basis) which tion of the U.S. and Canadian product rights for RETAVASE

41 (reteplase), an acute-care cardiovascular drug, from Roche The Company, along with numerous other pharmaceutical Healthcare. RETAVASE is a recombinant biologic cardiology manufacturers and distributors, is a defendant in a large num- care product administered for the treatment of acute ber of individual and class actions brought by retail pharma- myocardial infarction (heart attack) to improve blood flow to cies in state and federal courts under the antitrust laws. These the heart. It is among the class of fibrinolytic drugs known cases assert price discrimination and price-fixing violations as “clot busters.” RETAVASE received marketing authoriza- resulting from an alleged industry-wide agreement to deny tion from the FDA in October 1996 and was launched in retail pharmacists price discounts on sales of brand name pre- January 1997. scription drugs. The Company believes the claims against the The excess of purchase price over the estimated fair Company in these actions are without merit and is defending value amounted to $3.3 billion. This amount has been allo- them vigorously. cated to identifiable intangibles and goodwill. Approximately The Company’s subsidiary, Johnson & Johnson Vision Care $298 million has been identified as the value of IPR&D associ- Inc. (Vision Care), together with another contact lens manu- ated with the acquisitions. This IPR&D charge of $298 million facturer, a trade association and various individual defendants, is associated with DePuy and RETAVASE projects. is a defendant in several consumer class actions and an action The IPR&D charge related to DePuy projects consisted of brought by multiple State Attorneys General on behalf of the following: the Hip Cup System which is an Acetabular consumers alleging violations of federal and state antitrust Cup system that will incorporate a next generation outer shell laws. These cases, which were filed between July 1994 and with alternate bearing surfaces with a fair value of $55 million December 1996 and are consolidated before the United States on the acquisition date and was 60% complete; the Spine District Court for the Middle District of Florida, assert that Products which include a cervical cage to better restore the enforcement of Vision Care’s long-standing policy of selling alignment of the cervical spine following fusion procedures contact lenses only to licensed eye care professionals is a and development of a user friendly, efficient set of instruments result of an unlawful conspiracy to eliminate alternative distri- for the implantation of the anterior and posterior lumbar bution channels from the disposable contact lens market. The cage with a fair value at acquisition of $70 million and was Company believes that these actions are without merit and is approximately 50% complete; the remaining $39 million con- defending them vigorously. sists of 30 projects with fair values under $3 million each Johnson & Johnson Vision Care is also a defendant in a that at acquisition ranged from 20% to 80% complete. At nationwide consumer class action brought on behalf of pur- January 2, 2000, these projects were 75%, 80% and 25% to chasers of its ACUVUE brand contact lenses. The plaintiffs in 85% complete, respectively. that action, which was filed in 1996 in New Jersey State Court, The IPR&D charge of $134 million associated with the allege that Vision Care sold its 1-DAY ACUVUE lens at a sub- Centocor merger was related to the valuation of Centocor’s stantially cheaper price than ACUVUE and misled consumers acquisition of RETAVASE from Roche. The RETAVASE project into believing these were different lenses when, in fact, they represents planned development of a combination cardiovascu- were allegedly “the same lenses.” Plaintiffs are seeking sub- lar therapy employing the fibrinolytic drug RETAVASE in com- stantial damages and an injunction against supposed bination with REOPRO (abciximab). This project was 75% improper conduct. The Company believes these claims are complete at acquisition and 85% completed at January 2, 2000. without merit and is defending the action vigorously. The remaining effort to complete these projects is not expected The Company’s Ortho Biotech subsidiary is party to an arbi- to be material. tration proceeding filed against it in 1995 by Amgen, Ortho’s The value of the IPR&D projects was calculated with the licensor of U.S. non-dialysis rights to EPO, in which Amgen assistance of third party appraisers and was based on the seeks to terminate Ortho’s U.S. license rights and collect sub- estimated percentage completion of the various research and stantial damages based on alleged deliberate EPO sales by development projects being pursued using cash flow projec- Ortho during the early 1990’s into Amgen’s reserved dialysis tions discounted for the risk inherent in such projects. The market. The Company believes no basis exists for terminating discount rates used ranged between 13% and 20%. Ortho’s U.S. license rights or for obtaining damages and is Divestitures in 1999 and 1998 did not have a material effect vigorously contesting Amgen’s claims. However, Ortho’s U.S. on the Company’s results of operations, cash flows or financial license rights to EPO are material to the Company; thus, an position. unfavorable outcome could have a material adverse effect on the Company’s consolidated financial position, liquidity or 18 Legal Proceedings results of operations. The Company is involved in numerous product liability cases The Company is also involved in a number of patent, trade- in the United States, many of which concern adverse reactions mark and other lawsuits incidental to its business. to drugs and medical devices. The damages claimed are sub- The Company believes that the above proceedings, except stantial, and while the Company is confident of the adequacy as noted above, would not have a material adverse effect on of the warnings and instructions for use which accompany its results of operations, cash flows or financial position. such products, it is not feasible to predict the ultimate outcome of litigation. However, the Company believes that if any liability results from such cases, it will be substantially covered by reserves established under its self-insurance program and by commercially available excess liability insurance.

42 19 Earnings Per Share 20 Capital and Treasury Stock The following is a reconciliation of basic net earnings per Changes in treasury stock were: share to diluted net earnings per share for the years ended Treasury Stock (Dollars in Millions Except January 2, 2000, January 3, 1999 and December 28, 1997: Number of Shares in Thousands) Shares Amount (Shares in Millions) 1999(1) 1998(2) 1997 Balance at December 29, 1996 158,136 $1,154 Basic earnings per share $ 3.00 2.16 2.40 Employee compensation and stock Average shares option plans (11,794) (658) outstanding—basic 1,390.1 1,389.8 1,380.6 Repurchase of common stock 10,520 628 Potential shares Business combinations (11,998) (129) exercisable under Balance at December 28, 1997 144,864 995 stock option plans 68.7 68.8 70.5 Employee compensation and Less: shares repurchased stock option plans (11,906) (862) under treasury stock method (40.6) (41.4) (35.7) Repurchase of common stock 12,602 930 Adjusted average shares Business combinations — (3) outstanding—diluted 1,418.2 1,417.2 1,415.4 Balance at January 3, 1999 145,560 1,060 Diluted earnings per share $ 2.94 2.12 2.34 Employee compensation and stock option plans (9,255) (821) The diluted earnings per share calculation does not include Repurchase of common stock 8,928 840 approximately 6 million shares related to convertible debt and Business combinations — (2) 11 million shares of options whose exercise price is greater than average market value as the effect would be anti-dilutive. Balance at January 2, 2000 145,233 $1,077 (1) 1999 results excluding special charges related to the Centocor merger are: Basic EPS at $3.03 and diluted EPS at $2.97 (unaudited). Shares of common stock authorized and issued were (2) 1998 results excluding Restructuring and In-Process Research & Develop- 1,534,916,000 shares at the end of 1999 and 1,534,824,000 shares ment charges are: Basic EPS at $2.66 and diluted EPS at $2.61 (unaudited). at the end of 1998, 1997 and 1996.

21 Selected Quarterly Financial Data (Unaudited) Selected unaudited quarterly ﬁnancial data for the years 1999 and 1998 are summarized below: 1999 1998

(Dollars in Millions First Second Third Fourth First Second Third Fourth Except Per Share Amounts) Quarter Quarter Quarter Quarter(1) Quarter(2) Quarter Quarter Quarter(3) Segment sales to customers Consumer $ 1,728 1,687 1,704 1,744 1,639 1,571 1,587 1,731 Pharmaceutical 2,577 2,829 2,735 2,552 2,149 2,253 2,185 2,313 Professional 2,434 2,455 2,445 2,581 2,052 2,050 2,039 2,426 Total sales $ 6,739 6,971 6,884 6,877 5,840 5,874 5,811 6,470

Gross proﬁt 4,669 4,848 4,816 4,696 4,042 4,047 4,021 4,281 Earnings before provision for taxes on income 1,622 1,629 1,531 971 1,294 1,391 1,321 176 Net earnings 1,138 1,164 1,111 754 919 1,018 964 102

Basic net earnings per share $ .82 .84 .80 .54 .66 .73 .69 .07

Diluted net earnings per share $ .80 .82 .78 .53 .65 .72 .68 .07

(1) 1999 results excluding special charges related to the Centocor merger: Earnings before taxes $1,020; Net earnings $796; Basic EPS $.57 and Diluted EPS $.56. (2) 1998 Q1 results excluding In-Process Research & Development charges: Earnings before taxes $1,428; Net earnings $1,006; Basic EPS $.72 and Diluted EPS $.71. (3) 1998 Q4 results excluding Restructuring and In-Process Research & Development charges: Earnings before taxes $953; Net earnings $712; Basic EPS $.51 and Diluted EPS $.50.

43 Report of Management Independent Auditor’s Report

The management of Johnson & Johnson is responsible for the To the Shareowners and Board of Directors of integrity and objectivity of the accompanying financial state- Johnson & Johnson: ments and related information. The statements have been prepared in conformity with accounting principles generally In our opinion, the accompanying consolidated balance sheets accepted in the United States, and include amounts that are and the related consolidated statements of earnings, consoli- based on our best judgments with due consideration given dated statements of equity and consolidated statements of to materiality. cash flows present fairly, in all material respects, the financial Management maintains a system of internal accounting position of Johnson & Johnson and its subsidiaries at January controls monitored by a corporate staff of professionally 2, 2000 and January 3, 1999, and the results of their opera- trained internal auditors who travel worldwide. This system is tions and their cash flows for each of the three years in the designed to provide reasonable assurance, at reasonable cost, period ended January 2, 2000, in conformity with accounting that assets are safeguarded and that transactions and events principles generally accepted in the United States. These are recorded properly. While the Company is organized on the financial statements are the responsibility of the Company’s principle of decentralized management, appropriate control management; our responsibility is to express an opinion on measures are also evidenced by well-defined organizational these financial statements based on our audits. We conducted responsibilities, management selection, development and eval- our audits of these statements in accordance with auditing uation processes, communicative techniques, financial plan- standards generally accepted in the United States which ning and reporting systems and formalized procedures. require that we plan and perform the audit to obtain reason- It has always been the policy and practice of the Company able assurance about whether the financial statements are to conduct its affairs ethically and in a socially responsible free of material misstatement. An audit includes examining, manner. This responsibility is characterized and reflected in on a test basis, evidence supporting the amounts and disclo- the Company’s Credo and Policy on Business Conduct that are sures in the financial statements, assessing the accounting distributed throughout the Company. Management maintains a principles used and significant estimates made by manage- systematic program to ensure compliance with these policies. ment, and evaluating the overall financial statement presenta- PricewaterhouseCoopers LLP, independent auditors, tion. We believe that our audits provide a reasonable basis for is engaged to audit our financial statements. Pricewaterhouse- the opinion expressed above. Coopers LLP maintains an understanding of our internal controls and conducts such tests and other auditing procedures considered necessary in the circumstances to express their opinion in the report that follows. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the indepen- New York, New York dent auditors, management and internal auditors to review January 24, 2000 their work and confirm that they are properly discharging their responsibilities. In addition, the independent auditors, the Gen- eral Counsel and the Vice President, Internal Audit are free to meet with the Audit Committee without the presence of management to discuss the results of their work and observations on the adequacy of internal financial controls, the quality of financial reporting and other relevant matters.

Ralph S. Larsen Robert J. Darretta Chairman, Board of Directors Vice President, Finance and Chief Executive Ofﬁcer and Chief Financial Ofﬁcer

44 Segments of Business(1) Johnson & Johnson and Subsidiaries

Sales to Customers (2)

(Dollars in Millions) 1999 1998 1997 Consumer—Domestic $ 3,670 3,325 3,240 International 3,194 3,201 3,258 Total 6,864 6,526 6,498 Pharmaceutical—Domestic 6,419 4,993 4,015 International 4,275 3,907 3,882 Total 10,694 8,900 7,897 Professional—Domestic 5,296 4,530 4,640 International 4,617 4,039 3,795 Total 9,913 8,569 8,435 Worldwide total $27,471 23,995 22,830

Operating Proﬁt Identiﬁable Assets

(Dollars in Millions) 1999(4) 1998(5) 1997 1999 1998 1997 Consumer $ 683 414 551 4,901 4,904 4,745 Pharmaceutical 3,595 2,933 2,572 7,483 5,918 6,324 Professional 1,632 941 1,543 12,458 13,244 7,773 Segments total 5,910 4,288 4,666 24,842 24,066 18,842 Expenses not allocated to segments (3) (157) (106) (79) General corporate 4,321 3,226 3,266 Worldwide total $ 5,753 4,182 4,587 29,163 27,292 22,108

Additions to Property, Depreciation and Plant & Equipment Amortization

(Dollars in Millions) 1999 1998 1997 1999 1998 1997 Consumer $ 412 268 267 277 273 265 Pharmaceutical 666 600 484 341 352 282 Professional 576 627 573 786 629 495 Segments total 1,654 1,495 1,324 1,404 1,254 1,042 General corporate 74 50 91 40 31 40 Worldwide total $ 1,728 1,545 1,415 1,444 1,285 1,082

Geographic Areas(2) Sales to Customers(2) Long-Lived Assets

(Dollars in Millions) 1999 1998 1997 1999 1998 1997 United States $15,385 12,848 11,895 9,321 8,531 5,728 Europe 6,711 6,354 5,995 3,698 4,135 2,390 Western Hemisphere excluding U.S. 2,023 2,105 2,044 550 429 457 Asia-Paciﬁc, Africa 3,352 2,688 2,896 439 402 384 Segments total 27,471 23,995 22,830 14,008 13,497 8,959 General corporate 282 262 250 Other non long-lived assets 14,873 13,533 12,899 Worldwide total $27,471 23,995 22,830 29,163 27,292 22,108

(1) See Management’s Discussion and Analysis, pages 26 to 28, for a description of the segments in which the Company does business. (2) Export sales and intersegment sales are not signiﬁcant. No single customer or country represents 10% or more of total sales. (3) Amounts not allocated to segments include interest income/expense, minority interests and general corporate income and expense. (4) 1999 Pharmaceutical results excluding special charges related to the Centocor merger is $3,644. (5) 1998 results excluding Restructuring and In-Process Research and Development charges: Consumer $658, Pharmaceutical $3,132, and Professional $1,409. See Note 14 for details of Restructuring and IPR&D charges by segment.

45 Summary of Operations and Statistical Data 1989-1999(8) Johnson & Johnson and Subsidiaries

(Dollars in Millions Except Per Share Figures) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989

Sales to customers–Domestic $ 15,385 12,848 11,895 10,986 9,225 7,871 7,270 7,011 6,293 5,485 4,931 Sales to customers–International 12,086 11,147 10,935 10,769 9,696 7,930 6,944 6,868 6,207 5,812 4,898 Total sales 27,471 23,995 22,830 21,755 18,921 15,801 14,214 13,879 12,500 11,297 9,829 Cost of products sold 8,442 7,604 7,230 7,079 6,264 5,315 4,807 4,700 4,221 3,947 3,488 Selling, marketing and administrative expenses 10,503 9,027 8,756 8,427 7,491 6,375 5,807 5,758 5,188 4,508 3,918 Research expense 2,600 2,336 2,209 1,962 1,700 1,348 1,248 1,233 1,052 880 764 Purchased in-process research and development — 298 — — — 37 — — 70 115 — Interest income (246) (277) (213) (149) (125) (66) (84) (101) (100) (105) (92) Interest expense, net of portion capitalized 197 129 124 133 160 162 146 144 140 203(4) 143 Other expense, net 222 143 137 283 171 76 32 132 87 260(4) 94 Restructuring charge — 553 ————————— 21,718 19,813 18,243 17,735 15,661 13,247 11,956 11,866 10,658 9,808 8,315 Earnings before provision for taxes on income 5,753 4,182 4,587 4,020 3,260 2,554 2,258 2,013 1,842 1,489 1,514 Provision for taxes on income 1,586 1,179 1,276 1,138 893 631 518 514 510 434 432 Earnings before cumulative effect of accounting changes 4,167 3,003 3,311 2,882 2,367 1,923 1,740 1,499 1,332 1,055 1,082 Cumulative effect of accounting changes (net of tax) ———————(595) — — — Net earnings $ 4,167 3,003 3,311 2,882 2,367 1,923 1,740 904 1,332 1,055 1,082 Percent of sales to customers 15.2 12.5(3) 14.5 13.2 12.5 12.2 12.2 6.5(1) 10.7 9.3(2) 11.0 Basic net earnings per share of common stock* $3.00 2.16 2.40 2.10 1.78 1.46 1.31 .67 .98 .78 .80 Diluted net earnings per share of common stock* $2.94 2.12 2.34 2.05 1.75 1.45 1.30 .66 .97 .77 .79 Percent return on average shareowners’ equity 27.5 22.3(3) 27.4 28.0 28.5 29.4 31.4 16.1(1) 24.3 22.6(2) 27.5 Percent increase (decrease) over previous year: Sales to customers 14.5 5.1 4.9 15.0 19.7 11.2 2.4 11.0 10.6 14.9 8.5 Basic net earnings per share 38.9(3) (10.0)(3) 14.3 18.0 21.9 11.5 95.5(1) (31.6)(1) 25.6(2) (2.5)(2) 12.7 Diluted net earnings per share 38.7(3) (9.4)(3) 14.1 17.1 20.7 11.5 97.0(1) (32.0)(1) 26.0(2) (2.5)(2) 12.9 Supplementary expense data: Cost of materials and services(5) $ 13,789 11,736 11,600 11,278 9,903 7,983 7,060 6,875 6,342 5,757 4,915 Total employment costs 6,350 5,755 5,446 5,324 4,750 4,318 4,114 4,109 3,561 3,229 2,891 Depreciation and amortization 1,444 1,285 1,082 1,023 869 738 635 565 497 477 417 Maintenance and repairs(6) 317 296 266 282 254 219 203 211 204 186 193 Total tax expense(7) 2,237 1,821 1,850 1,694 1,415 1,101 945 936 904 782 710 Total tax expense per share(7)* 1.61 1.31 1.34 1.23 1.06 .84 .71 .70 .67 .58 .53 Supplementary balance sheet data: Property, plant and equipment, net $ 6,719 6,395 5,887 5,713 5,264 4,980 4,491 4,233 3,784 3,346 2,904 Additions to property, plant and equipment 1,728 1,545 1,415 1,378 1,261 942 977 1,121 1,018 878 765 Total assets 29,163 27,292 22,108 20,603 18,379 16,203 12,706 12,389 11,073 9,798 8,075 Long-term debt 2,450 1,729 1,181 1,465 2,339 2,431 1,731 1,603 1,560 1,358 1,193 Common stock information* Dividends paid per share $ 1.09 .97 .85 .735 .64 .565 .505 .445 .385 .33 .28 Shareowners’ equity per share $ 11.67 10.13 9.26 8.23 6.95 5.56 4.36 4.01 4.32 3.77 3.18 1 7 7 1 3 3 3 1 5 7 7 Market price per share (year-end close) $ 93 ⁄4 83 ⁄8 64 ⁄8 50 ⁄2 42 ⁄4 27 ⁄8 22 ⁄8 25 ⁄4 28 ⁄8 17 ⁄8 14 ⁄8 Average shares outstanding (millions)–basic 1,390.1 1,389.8 1,380.6 1,375.1 1,329.1 1,317.8 1,330.0 1,344.2 1,354.1 1,348.8 1,347.3 –diluted 1,418.2 1,417.2 1,415.4 1,402.7 1,349.8 1,329.0 1,342.1 1,359.5 1,379.9 1,364.3 1,365.1 Shareowners of record (thousands) 169.4 168.9 160.0 142.0 117.7 109.7 101.7 90.1 74.4 66.2 62.1 Employees (thousands) 97.8 94.3 91.1 89.8 82.8 82.1 82.1 85.8 84.1 83.1 83.7

* Adjusted to reﬂect the 1996 two-for-one stock split. (1) Excluding the cumulative effect of accounting changes of $595 million. –1992 earnings percent of sales to customers before accounting changes is 10.8%. –1992 earnings percent return on average shareowners’ equity before accounting changes is 25.4%. –1993 basic net earnings per share percent increase over prior year before accounting changes is 17.0% and 18.2% for diluted earnings per share; 1992 is 14.3% for basic earnings per share and 13.4% for diluted earnings per share. (2) Excluding Latin America non-recurring charges of $125 million. –1990 net earnings percent of sales to customers before non-recurring charges is 10.4%. –1990 percent return on average shareowners’ equity before non-recurring charges is 24.9%. –1991 basic net earnings per share percent increase over prior year before non-recurring charges is 12.6% and 12.8% for diluted earnings per share; 1990 is 8.8% for basic earnings per share and 8.9% for diluted earnings per share. (3) Excluding Restructuring and In-Process Research and Development charges of $697 million. –1998 earnings percent of sales to customers before special charges is 15.4%. –1998 basic net earnings per share before special charges is $2.66. –1998 diluted net earnings per share before special charges is $2.61. –1998 percent return on average shareowners’ equity before special charges is 26.8%. –1998 basic net earnings per share increase over prior year before special charges is 10.8%. –1998 diluted net earnings per share increase over prior year before special charges is 11.5%; – 1998 cost of products sold includes $60 million of inventory write-offs for restructuring; – 1999 excluding special charges, basic net earnings per share percent increase over prior year is 13.9% and 13.8% for diluted net earnings per share. (4) Includes Latin America non-recurring charge of $36 million for the liquidation of Argentine debt and $104 million write-down in other expenses for permanent impairment of certain assets and operations in Latin America. (5) Net of interest and other income. (6) Also included in cost of materials and services category. (7) Includes taxes on income, payroll, property and other business taxes. (8) All periods have been restated to include the effects of the Centocor merger.

46 Principal Global Afﬁliates

Advanced Sterilization Products develops, manufactures and markets a range of sterilization systems based on a patented low temperature hydrogen peroxide gas plasma process, as well as sterilizing/disinfecting solutions. The STERRAD Sterilization System is safe, fast, environmentally friendly and effective, and can be used on a broad range www.sterrad.com of medical products in both health care and industrial/scientiﬁc facilities.

Centocor is a leading biopharmaceutical company that creates, acquires and markets cost-effective therapies. Leading products include REMICADE (inﬂiximab) for pre- venting joint damage from rheumatoid arthritis and for treating Crohn’s disease; REOPRO (abciximab) for use in percutaneous coronary intervention; and RETAVASE www.centocor.com (reteplase) a clot buster that is administered during a heart attack.

Cordis is a global leader in developing and marketing devices for circulatory disease management, including stents, balloons and catheters used in treating cardiovascular disease and related conditions. Products are marketed by clinical application through four main divisions: Cordis Cardiology for coronary applications; Cordis Endovascular for all peripheral applications; Interventional Neuroradiology; and Biosense Webster www.cordis.com for electrophysiology and medical sensor technology in cardiovascular procedures.

DePuy develops and markets products under both the DePuy and Codman brands. As DePuy, it provides products for reconstructing damaged or diseased joints, facili- tating fusion of elements of the spine and correcting spinal deformities, and repair- ing bone fractures. As Codman, it provides for the surgical treatment of central nervous system disorders through a wide range of products such as hydrocephalic www.depuy.com shunt valve systems, intracranial pressure sensors and spinal ﬁxation implants.

Ethicon develops and markets innovative products for surgery in the areas of wound closure and wound management, surgical sports medicine, women’s health and cardiovascular surgery. Ethicon Products Division produces sutures, adhesives, sealants and other devices designed to facilitate precise wound closure and tissue repair. Mitek Products Division makes suture anchor systems to reattach soft tissue to bone and electrosurgical systems for soft tissue management. Gynecare Division focuses on devices and therapies for surgical adhesion prevention, urinary incontinence and abnormal uterine bleeding. CardioVations Division products assist the cardiac sur- www.ethiconinc.com geon in access, stabilization and vein harvesting for grafts.

Ethicon Endo-Surgery develops and markets a broad portfolio of advanced surgical instruments for less invasive and traditional surgery. Its mission is to help physicians around the world improve the quality of patient care through innovation. The company’s focus is on designing innovative, procedure-enabling devices for interventional diagnosis and treatment of various diseases and conditions in the areas of general www.ethicon-endo.com surgery, breast care management, surgical oncology, thoracic and gynecology.

Greiter AG develops and produces a line of elegant sunscreen and after-sun products that combine sun protection with special moisturizers. Its products are sold throughout Europe and other markets.

Independence Technology is a newly-formed company whose mission is the development of products using innovative technologies to help meet the needs and desires of people with disabilities. The ﬁrst product to be launched will be the revolutionary INDEPENDENCE 3000 IBOT Transporter, a gyro-balanced device (designed to operate either on two or four wheels) that is being developed for people with mobility-related www.indetech.com disabilities.

47 Indigo Medical develops and markets innovative minimally invasive products to treat urologic disorders, including a diode laser for treatment of benign prostatic hyper- plasia, and THERASEED, a proven, minimally invasive alternative to surgery for the www.indigomedical.com treatment of localized prostate cancer.

Janssen-Cilag produces and markets a broad range of pharmaceutical products, mainly discovered and/or developed by the Janssen Research Foundation or by the R.W. Johnson Pharmaceutical Research Institute. Leading products include PROCRIT/ EPREX (hematology), PROPULSID/PREPULSID (gastroenterology), RISPERDAL (psychiatry), SPORANOX (dermatology/fungal infections), DURAGESIC/DUROGESIC (pain www.janssen-cilag.com management), TOPAMAX (epilepsy) and PARIET/ACIPHEX (gastroenterology).

Janssen Pharmaceutica produces and markets prescription medications in four therapeutic areas: Central nervous system disorders, gastrointestinal health, pain management and the treatment of fungal infections. Leading products include RISPERDAL (risperidone), an antipsychotic; ACIPHEX (rabeprazole), a proton pump inhibitor; PROPULSID (cisapride), an agent that promotes gastric motility; DURA- GESIC (fentanyl transdermal system), a skin patch for the treatment of moderate to www.us.janssen.com severe chronic pain; and SPORANOX (itraconazole), an antifungal.

The Janssen Research Foundation conducts research and development and achieves regulatory approval for prescription drug products in areas such as analgesia, gastroenterology, neurology, oncology and psychiatry.

The primary businesses of Johnson & Johnson Consumer Products Company are baby care, wound care and skin care. The company’s wide range of products includes the familiar line of baby and child care products plus a baby bottle feeding system, a complete line of family ﬁrst aid and home health care products, a line of foot care products, and skin care products such as cleansers, astringents, moisturiz- www.yourbaby.com ers, acne treatments and body powders.

The Johnson & Johnson Development Corporation makes equity investments in early-stage venture and young publicly-traded health care companies, where promising new technologies are under development. Portfolio companies include those in the ﬁelds of pharmaceuticals, biotechnology, medical and surgical devices, health care information technology, diagnostics and consumer products.

Johnson & Johnson Health Care Systems provides a single point of contact for Johnson & Johnson products for large managed care, hospital and government customers. The company also offers consulting capabilities for hospital customers and health and ﬁtness services for employers.

Johnson & Johnson Medical provides products for wound management, infection prevention and vascular access. Products include surgical sponges, advanced wound care dressings, professional skin care cleansers and moisturizers, disposable surgical www.jnjmedical.com packs and apparel, safety intravenous catheters and tissue regeneration.

Johnson & Johnson • Merck Consumer Pharmaceuticals Co. is a 50/50 joint venture formed to develop and market a broad range of nonprescription products derived primarily from Merck & Co., Inc. prescription medicines, as well as products licensed and acquired from outside sources. Current products include PEPCID AC Acid Controller, for both the prevention and relief of heartburn and acid indigestion, and MYLANTA www.jnj-merck.com Antacid, a leading line of antacid/antigas products in liquid and solid forms.

48 On behalf of the domestic consumer operating companies, Johnson & Johnson Sales and Logistics Company provides sales, marketing and logistical services to our U.S. retail customers. It represents a single point of contact for customer-focused selling teams, customer service, distribution, retail merchandising and professional detailing.

LifeScan, Inc. develops, manufactures and markets glucose monitoring products for people with diabetes. Each product consists of a portable electronic meter and www.lifescan.com reagent test strips used in the home and for bedside monitoring.

McNeil Consumer Healthcare’s nonprescription pharmaceuticals include complete lines of TYLENOL Acetaminophen and MOTRIN Ibuprofen products for adults and children. Other products include IMODIUM A-D Anti-diarrheal, sinus pain relievers, cough/cold/allergy preparations, children’s vitamins, BENECOL products for reducing cholesterol, LACTAID lactose-intolerance products and NIZORAL A-D Anti- www.tylenol.com dandruff shampoo.

McNeil Specialty Products Company is developing food and beverage ingredients and products that have a positive impact on nutrition and offer dietary alternatives. SPLENDA (sucralose), a non-caloric sweetener with broad-based applications, is its www.splenda.com ﬁrst product offering.

Neutrogena Corporation develops, manufactures and markets premium, high quality skin and hair care products that are sold worldwide and recommended by medical professionals. The product line includes bar and liquid soap, shampoo, hand cream, body lotion, facial moisturizers, bath preparations and cosmetics, as well as other www.neutrogena.com hair and skin care products.

Noramco, Inc. produces a wide variety of active pharmaceutical ingredients in addition to being a major worldwide producer of medicinal analgesics, pharmaceutical intermediates and synthetic ﬁne organic chemicals. Additionally, monomers and poly- mers are produced for both pharmaceutical and medical devices.

Ortho Biotech Inc. markets pharmaceutical products including those derived from biotechnology research. The company’s current product line includes an rDNA erythropoietin — PROCRIT (Epoetin alfa) — to treat the anemias associated with cancer chemotherapy, HIV-infected, AZT-treated individuals, chronic renal failure pre-dialysis, and as an alternative to blood transfusion in certain elective, non-cardiac, non-vascular surgical procedures. Ortho Biotech also markets the ﬁrst therapeutic monoclonal antibody approved to reverse solid organ transplant rejection and a product to treat www.procrit.com hairy cell leukemia, a rare form of cancer.

Ortho-Clinical Diagnostics, Inc. provides professional diagnostic products to hospital laboratories, commercial clinical laboratories and blood donor centers. Its products include reagents used in blood transfusions and blood screening; reagents and instrument systems for clinical chemistry; and RhoGAM, an injectable drug used to prevent hemolytic disease of the newborn.

Ortho Dermatological develops and markets prescription skin care products that are leaders in the acne, antifungal and aging skin categories. Major brands are RETIN-A MICRO (tretinoin gel) microsphere, 0.1%, RENOVA (tretinoin emollient cream) 0.05% www.retinamicro.com and SPECTAZOLE (econazole nitrate 1%) Cream.

49 Ortho-McNeil Pharmaceutical, Inc. provides the medical profession with prescription drugs in the following categories: Analgesics, anti-infectives, antiepileptics, cystic ﬁbro- sis and wound healing. The company’s line of women’s pharmaceuticals includes oral contraceptives, diaphragms, vaginal antifungals and hormone replacement therapy. Leading products include ULTRAM (tramadol HCl) pain medication; LEVAQUIN (lev- oﬂoxacin) Antibacterial; TOPAMAX (topiramate) Antiepileptic; REGRANEX (becaplermin) Gel 0.01% for diabetic foot ulcers, and oral contraceptives such as ORTHO www.ortho-mcneil.com TRI-CYCLEN (norgestimate/ethinyl estradiol).

Penaten develops, manufactures and markets a wide range of baby toiletries. The PENATEN brand is the market leader in Germany and enjoys a strong position in other European countries.

Personal Products Company develops, produces and markets innovative oral health, women’s health and sanitary protection products. It is a leader in the oral health market with a full line of ﬂoss, rinse and toothbrush products. Personal Products is also a leader in women’s health products with nonprescription and prescription vaginal yeast cures, personal lubricants, urinary pain relief tablets and vaginal contraceptives. The company’s comprehensive product line of sanitary protection products www.itsmybody.com includes feminine incontinence products, pantiliners, tampons and maxi pads.

RoC S.A. produces a line of products for the care of sensitive skin that includes lotions, cosmetics and creams for the face and body, and a sun protection line.

The R.W. Johnson Pharmaceutical Research Institute conducts pharmaceutical research and development in therapeutic areas including anti-infectives, central nervous system, diabetes, hematology/oncology, immunology/inﬂammation, women’s health, and wound healing.

The Spectacle Lens Group designs, develops, manufactures and markets innovative ophthalmic lenses.

Therakos, Inc. specializes in extracorporeal disease management through photomed- ical therapy.

Vistakon is the world's leading disposable contact lens company and markets the #1, #2, and #3 brands of disposable contact lenses through contact lens-dispensing professionals to consumers. ACUVUE, ACUVUE 2 and SUREVUE are market-leading spherical brands. 1-DAY ACUVUE is the top selling daily disposable product. The ACUVUE Bifocal contact lens is the leading disposable product for presbyopes. ACUVUE Toric, a new lens for people with astigmatism, is being launched through- www.acuvue.com out the world.

50 Worldwide Family of Companies

UNITED STATES Johnson & Johnson Ortho-Clinical Diagnostics, Inc. Consumer Products Company Raritan, New Jersey Advanced Sterilization Products Skillman, New Jersey Rochester, New York Irvine, California C. M. Burzik, President L. P. Harbing, President Adult Skin Care S. K. D’Agostino, President Ortho Dermatological Centocor Skillman, New Jersey Malvern, Pennsylvania Baby/Kids W. D. Cordivari, President J. C. Scodari, President O. K. Rankin, President Ortho-McNeil Pharmaceutical, Inc. Wound Care Cordis Corporation Raritan, New Jersey J. B. Smith, President Cardiology R. G. Savage, President Miami, Florida Johnson & Johnson J. R. Penn, President Personal Products Company Development Corporation Skillman, New Jersey New Brunswick, New Jersey Endovascular P. D. Mutchler, President L. G. Pickering, President Warren, New Jersey C. L. Zilm, President R.W. Johnson Pharmaceutical Johnson & Johnson Research Institute Health Care Systems Inc. Biosense Webster Inc. Raritan, New Jersey Piscataway, New Jersey Diamond Bar, California P. Peterson, M.D., Ph.D., President D. A. Michels, President R. T. Tanaka, President The Spectacle Lens Group of Interventional Neuroradiology Johnson & Johnson Medical Johnson & Johnson Vision Care, Inc. Miami, Florida Arlington, Texas Roanoke, Virginia E. R. LeMoure, General Manager S. J. Fanning, President V. E. Brunell, President

DePuy Johnson & Johnson • Merck Therakos, Inc. Consumer Pharmaceuticals Co. DePuy Orthopaedics, Inc. Exton, Pennsylvania Fort Washington, Pennsylvania Warsaw, Indiana J. S. MacLean, President P. K. Miller, President J. R. Binder, President Vistakon, Division of DePuy AcroMed, Inc. Johnson & Johnson Johnson & Johnson Vision Care, Inc. Sales and Logistics Company Raynham, Massachusetts Jacksonville, Florida New Brunswick, New Jersey E. R. Fender, President P. R. Keefer, President, J. F. Hogan, President Americas Codman & Shurtleff, Inc. Raynham, Massachusetts LifeScan, Inc. D. M. Hable, President Milpitas, California CANADA E. P. Milledge, Chairman Ethicon, Inc. Janssen-Ortho Inc. McNeil Consumer Healthcare Somerville, New Jersey North York, Ontario C. E. Holland, President Fort Washington, Pennsylvania W. A. Vernon, President Johnson & Johnson Inc. Ethicon Endo-Surgery, Inc. Montreal, Quebec Cincinnati, Ohio McNeil Specialty Products Company N. J. Valeriani, President New Brunswick, New Jersey Johnson & Johnson N. R. Polo, President Medical Products Inc. Independence Technology Peterborough, Ontario Warren, New Jersey Neutrogena Corporation J. L. Butel, President Los Angeles, California LifeScan Canada, Ltd. E. M. McNamara, President Burnaby, British Columbia Indigo Medical, Inc. Cincinnati, Ohio Noramco, Inc. McNeil Consumer Products, Canada K. N. McCormick, Athens, Georgia Guelph, Ontario Vice President and General Manager E. S. Graham, President Ortho-Clinical Diagnostics Janssen Pharmaceutica Inc. Ortho Biotech Inc. Mississauga, Ontario Titusville, New Jersey Raritan, New Jersey D. Y. Norton, President C. A. Webb, President

51 LATIN AMERICA Peru England Johnson & Johnson del Peru S.A. Cordis U.K. Limited Argentina Lima South Ascot Janssen-Cilag Farmaceutica Buenos Aires Puerto Rico DePuy International Limited Johnson & Johnson (Caribbean) Leeds Johnson & Johnson de Caguas Argentina S.A. C.e.l. Ethicon Endo-Surgery U.K. Buenos Aires Johnson & Johnson Medical (Caribbean) Bracknell Caguas Johnson & Johnson Medical S.A. Janssen-Cilag Limited Buenos Aires Uruguay High Wycombe Johnson & Johnson de Uruguay S.A. Brazil Montevideo Johnson & Johnson Limited Janssen-Cilag Farmaceutica Ltda. Maidenhead São Paulo Venezuela Janssen-Cilag Farmaceutica C.A. Johnson & Johnson Medical Limited Johnson & Johnson Indústria Caracas Ascot e Comércio Ltda. LifeScan U.K. São Paulo Johnson & Johnson de Venezuela, S.A. Caracas High Wycombe Johnson & Johnson Professional Ortho-Clinical Diagnostics Products Ltda. Johnson & Johnson Medical de Venezuela Amersham São Paulo Caracas Vistakon Europe Chile Bracknell Johnson & Johnson de Chile S.A. EUROPE Santiago France Austria Cordis S.A. Johnson & Johnson Medical Janssen-Cilag G.m.b.H. Issy-Les-Moulineaux Santiago Vienna DePuy France Colombia Johnson & Johnson G.m.b.H. Lyon Janssen-Cilag Farmaceutica S.A. Hallein Bogota Ethicon S.A. Johnson & Johnson Medical G.m.b.H. Issy-Les-Moulineaux Johnson & Johnson de Colombia S.A. Vienna Cali Ethicon Endo-Surgery S.A. Belgium Issy-Les-Moulineaux Johnson & Johnson Medical Colombia Cordis N.V. Bogota Zaventem Janssen-Cilag S.A. Issy-Les-Moulineaux Mexico Janssen-Cilag N.V. Janssen-Cilag Farmaceutica, Antwerp Johnson & Johnson S.A. S.A. de C.V. Issy-Les-Moulineaux Mexico City Janssen Pharmaceutica N.V. Beerse Johnson & Johnson Medical S.A. Johnson & Johnson de Mexico, S.A. Issy-Les-Moulineaux de C.V. Janssen Research Foundation Mexico City Beerse LifeScan Issy-Les-Moulineaux Johnson & Johnson Medical Mexico, LifeScan Benelux S.A. de C.V. Beerse Ortho-Clinical Diagnostics S.A. Mexico City Issy-Les-Moulineaux Czech Republic Panama Janssen-Cilag RoC S.A. Johnson & Johnson Central America Prague Issy-Les-Moulineaux Panama City Johnson & Johnson spol. s.r.o. Prague

52 Germany Ethicon S.p.A. Johnson & Johnson Professional Cordis G.m.b.H. Rome Products S.A. Haan Madrid Ethicon Endo-Surgery S.p.A. DePuy Orthopädie G.m.b.H. Rome LifeScan Sulzbach Madrid Janssen-Cilag S.p.A. Ethicon G.m.b.H. Milan Ortho-Clinical Diagnostics Norderstedt Madrid Johnson & Johnson S.p.A. Ethicon Endo-Surgery Rome Vistakon (Europe) G.m.b.H. Madrid Norderstedt LifeScan S.p.A. Milan Sweden Janssen-Cilag G.m.b.H. Janssen-Cilag AB Rosellen Ortho-Clinical Sollentuna Diagnostics S.p.A. Johnson & Johnson G.m.b.H. Milan Johnson & Johnson AB Düsseldorf Sollentuna The Netherlands Johnson & Johnson Medical G.m.b.H. Janssen-Cilag B.V. Johnson & Johnson Consumer Norderstedt Tilburg Products Sollentuna LifeScan G.m.b.H. Johnson & Johnson/Gaba B.V. Neckargemund Almere Switzerland Cilag AG Ortho-Clinical Diagnostics G.m.b.H. Johnson & Johnson Medical B.V. Schaffhausen Neckargemund Amersfoort Greiter AG Greece Poland Baar Janssen-Cilag Pharmaceutical S.A.C.I. Johnson & Johnson Poland, Sp. z.o.o. Athens Warsaw Janssen-Cilag AG Baar Johnson & Johnson Hellas S.A. Portugal Athens Janssen-Cilag Farmaceutica, Ltda. Janssen-Cilag Queluz Zug Johnson & Johnson Medical Products S.A. Johnson & Johnson Limitada Johnson & Johnson AG Athens Queluz Spreitenbach

Hungary Johnson & Johnson Professional Johnson & Johnson Medical AG Johnson & Johnson Kft. Products, Limitada Spreitenbach Budapest Queluz McNeil Consumer Nutritionals Europe Ireland Russia Zug Janssen-Cilag Pharmaceutical Limited Johnson & Johnson Ltd. Cork Moscow Turkey Johnson & Johnson Limited Johnson & Johnson (Ireland) Limited Scotland Istanbul Tallaght Ethicon Limited Edinburgh Johnson & Johnson Medical ASIA-PACIFIC, AFRICA Tallaght Slovenia Johnson & Johnson S.E. Australia Italy Ljubljana DePuy Australia Pty. Ltd. Cordis S.p.A. Nottinghill, Victoria Milan Spain Janssen-Cilag S.A. Janssen-Cilag Pty. Ltd. DePuy Italy SRL Madrid Lane Cove Milan Johnson & Johnson S.A. Madrid

53 Johnson & Johnson Medical Pty. Ltd. Israel Metro Manila North Ryde Biosense Europe Haifa Johnson & Johnson (Philippines), Inc. Johnson & Johnson Paciﬁc Pty. Limited Metro Manila Sydney Janssen-Cilag Kibbutz Shefayim Singapore Ortho-Clinical Diagnostics Janssen-Cilag Singapore/Malaysia Melbourne Johnson & Johnson Medical Singapore Kibbutz Shefayim Tasmanian Alkaloids Pty. Limited Johnson & Johnson Medical S.I.M. Westbury, Tasmania Japan Singapore DePuy Japan, Inc. China Tokyo Johnson & Johnson Pte. Ltd. Johnson & Johnson China Ltd. Singapore Shanghai Janssen-Kyowa Co., Ltd. Tokyo Ortho-Clinical Diagnostics Johnson & Johnson Medical Ltd. Singapore Shanghai Johnson & Johnson K.K. Tokyo South Africa Shanghai Johnson & Johnson Ltd. Janssen-Cilag (Pty.) Ltd. Shanghai Johnson & Johnson Medical Sandton Tokyo Shanghai Johnson & Johnson Johnson & Johnson Pharmaceuticals Ltd. Ortho-Clinical Diagnostics K.K. Professional Products (Pty.) Ltd. Shanghai Tokyo Halfway House

Xian-Janssen Pharmaceutical Ltd. Vistakon Japan Johnson & Johnson (Pty.) Limited Xian, Shaanxi Province Tokyo East London

Egypt Korea Taiwan Johnson & Johnson (Egypt) S.A.E. Janssen-Cilag Korea, Ltd. Janssen-Cilag Taiwan Cairo Seoul Taipei

Hong Kong Johnson & Johnson Korea, Ltd. Johnson & Johnson Medical Taiwan Janssen-Cilag Seoul Taipei Hong Kong Johnson & Johnson Medical Korea Ltd. Johnson & Johnson Taiwan, Ltd. Johnson & Johnson (Hong Kong) Limited Seoul Taipei Hong Kong Malaysia Thailand Johnson & Johnson Medical Hong Kong Johnson & Johnson Medical Mfg., Janssen-Cilag Pharmaceutica Limited Hong Kong Sdn. Bhd. Bangkok Selangor Darul Ehsan India Johnson & Johnson Medical Thailand Janssen-Cilag Johnson & Johnson Sdn. Bhd. Bangkok Mumbai Selangor Darul Ehsan Johnson & Johnson (Thailand) Limited Johnson & Johnson Limited Morocco Bangkok Mumbai Johnson & Johnson Morocco S.A. Casablanca United Arab Emirates Johnson & Johnson Professional Johnson & Johnson (Middle East) Inc. Mumbai Pakistan Dubai Johnson & Johnson Pakistan Indonesia (Private) Limited Zimbabwe Janssen-Cilag Pharmaceutica Karachi Johnson & Johnson (Private) Limited Jakarta Harare Philippines P.T. Johnson & Johnson Indonesia Janssen-Cilag Philippines Jakarta Metro Manila

Johnson & Johnson Medical Philippines

54 Board of Directors Committees of the Board

Gerard N. Burrow, M.D. Audit Nominating and Corporate Special Advisor to the President of The Audit Committee, composed entirely Governance Yale University for Health Affairs of non-employee Directors, helps the The Nominating and Corporate Gover- Board oversee the Company’s accounting nance Committee, composed entirely of Joan G. Cooney and reporting practices. It recommends non-employee Directors, is responsible Chairman, Executive Committee, independent public accountants for for overseeing corporate governance Children’s Television Workshop appointment by the Board and reviews matters, reviewing possible candidates James G. Cullen their performance; monitors the adequa- for Board membership and recommend- President and Chief Operating Officer, cy of internal accounting practices, pro- ing nominees for election. The Commit- Bell Atlantic Corporation cedures and controls; and reviews all tee is also responsible for evaluating the significant changes in accounting policies. function and performance of the Board M. Judah Folkman, M.D. and the Chief Executive Officer. Addi- Senior Associate in Surgery and P. J. Rizzo, Chairman tionally, the Committee reviews the Com- Director at Children’s Hospital and J. G. Cullen pany’s management succession plans Professor of Cell Biology, Harvard A. G. Langbo and executive resources. Medical School L. F. Mullin H. B. Schacht H. B. Schacht, Chairman Ann D. Jordan G. N. Burrow, M.D. Former Director of the Social Services Benefits A. D. Jordan Department, Chicago Lying-In Hospital The Benefits Committee, composed entire- L. F. Mullin ly of non-employee Directors, reviews Arnold G. Langbo P. J. Rizzo the management of the various retire- Chairman of the Board, Kellogg ment, pension, health and welfare plans Public Policy Company that cover substantially all employees of The Public Policy Advisory Committee is Ralph S. Larsen the Company’s domestic operations and composed of Board members and the Chairman, Board of Directors and employees of certain international sub- Company’s Vice President, Administra- Chief Executive Officer sidiaries. The Committee also monitors tion. It reviews the Company’s policies, the performance of the trusts in which programs and practices on public health John S. Mayo, Ph.D. pension funds are invested. issues regarding the environment and President Emeritus, AT&T Bell the health and safety of employees, and Laboratories J. G. Cooney, Chairperson advises and makes recommendations to M. F. Singer, Ph.D. Leo F. Mullin the Board on such issues. J. W. Snow Chairman and Chief Executive Officer, J. S. Mayo, Ph.D., Chairman Delta Air Lines, Inc. Compensation R. C. Deyo The Compensation Committee, composed Paul J. Rizzo M. J. Folkman, M.D. entirely of non-employee Directors, Retired Vice Chairman, A. D. Jordan reviews the compensation philosophy and IBM Corporation policy of the non-Board Management Science and Technology Henry B. Schacht Compensation Committee with respect to The Science and Technology Advisory Former Chairman and executive compensation, fringe benefits Committee is composed of Board mem- Chief Executive Officer, and other compensation matters. The bers and the Company’s Vice President, Lucent Technologies Committee also administers the Compa- Science and Technology. It advises the ny’s stock option plans and determines Board on scientific matters that include Maxine F. Singer, Ph.D. the compensation of the members of the major internal projects, interaction with President, Carnegie Institution of Management Compensation Committee. academic and other outside research Washington organizations, and the acquisition of A. G. Langbo, Chairman John W. Snow technologies and products. J. G. Cooney Chairman, President and Chief J. G. Cullen G. N. Burrow, M.D., Chairman Executive Officer, CSX Corporation J. W. Snow M. J. Folkman, M.D. Robert N. Wilson J. S. Mayo, Ph.D. Finance Vice Chairman, Board of Directors R. W. Ruddon, M.D., Ph.D. The Finance Committee exercises the M. F. Singer, Ph.D. management authority of the Board during the intervals between Board meetings.

R. S. Larsen, Chairman R. N. Wilson

55 Corporate Ofﬁcers & Company Group Chairmen

Corporate Officers Company Group Chairmen The following trademarks, service marks Ralph S. Larsen Robert W. Croce and trade names of Johnson & Johnson and Chairman, Board of Directors and William D. Dearstyne, Jr. its affiliated companies appear in this Chief Executive Officer Michael J. Dormer report: Colleen A. Goggins Robert N. Wilson ACROMED, ACUVANCE, ACUVUE, ACUVUE Carlos A. Gottschalk Vice Chairman, Board of Directors 2, ADVANCED STERILIZATION PRODUCTS, Walter Hak AGILITY, ANGIOGUARD, AQUAVENE, Robert J. Darretta David P. Holveck AVEENO, BAND-AID, BIOPSYS, BIOSENSE Vice President, Finance Dennis N. Longstreet WEBSTER, BX VELOCITY, CARDIOVATIONS, Executive Committee Eric P. Milledge CAREFREE, CENTOCOR, CIDEX OPA, Gerald M. Ostrov Russell C. Deyo CLEAN & CLEAR, CODMAN, CODMAN & Frank J. Ryan Vice President, Administration SHURTLEFF, CORDIS, CROSSFLEX LC, Curt M. Selquist Executive Committee C-STEM, 1-DAY ACUVUE, DEPUY, Pericles P. Stamatiades DERMABOND, DURAGESIC, DUROGESIC, Roger S. Fine Valentino Tanca EPREX, ERGAMISOL, ETHICON, ETHICON Vice President, General Counsel Peter T. Tattle ENDO-SURGERY, FEMRX, FLOXIN, GLOBAL Executive Committee Gerard Vaillant FX, GREITER, GYNECARE, HEALTHY Bernard W. Walsh WOMAN, IBOT, I/F CAGE, IMODIUM, JoAnn Heffernan Heisen Michael A. Yates IMODIUM A-D, INDEPENDENCE 3000, Vice President, INDEPENDENCE TECHNOLOGY, INDIGO, Chief Information Officer The Executive Committee of Johnson & INNOTECH, JANSSEN, JANSSEN-CILAG, Executive Committee Johnson is the principal management JOHNSON & JOHNSON, JOHNSON’S, group responsible for the operations and Christian Koffmann JOHNSON’S pH5.5, LACTAID, LEUSTATIN, allocation of the Company’s resources. Worldwide Chairman, Consumer & LIFESCAN, MAMMOTOME, MCNEIL, In addition, several Executive Committee Personal Care Group MENLO CARE, MINI CROWN, MITEK, members serve as Chairmen of Group Executive Committee MONISTAT, MONISTAT DUAL PAK, Operating Committees, which are com- MOTILIUM, MOTRIN, MYLANTA, NATUSAN, James T. Lenehan prised of managers who represent key NEUTROGENA, NICOTROL, NINJA, Worldwide Chairman, Medical Devices operations within the groups, as well as NIZORAL, NIZORAL A-D, NORAMCO, o.b., & Diagnostics Group management expertise in other special- OKT, OPTISOY, ORTHO, ORTHO BIOTECH, Executive Committee ized functions. These Committees oversee ORTHO-CLINICAL DIAGNOSTICS, and coordinate the activities of domestic ORTHOCLONE, ORTHO DERMATOLOGICAL, Clarence E. Lockett and international companies related to ORTHO DIALPAK, ORTHO-MCNEIL, Corporate Controller each of the Consumer, Pharmaceutical ORTHO-NOVUM, ORTHO-PREFEST, ORTHO and Professional businesses. Operating Willard D. Nielsen SUMMIT, ORTHO TRI-CYCLEN, PALMAZ management of each company is headed Vice President, Public Affairs CORINTHIAN IQ, PANACRYL, PENATEN, by a Chairman, President, General Man- PEPCID AC, PERSONAL PRODUCTS John A. Papa ager or Managing Director who reports COMPANY, P.F.C., PIZ BUIN, PREPULSID, Treasurer directly or through a line executive to a PROCRIT, PROPULSID, PROTECTIV, REACH, Group Operating Committee. Brian D. Perkins RED CROSS, REGRANEX, REMICADE, Worldwide Chairman, RENOVA, REOPRO, RETAVASE, RETIN-A Consumer Phamaceuticals MICRO, RhoGAM, RISPERDAL, RoC, & Nutritional Products Group SHOWER TO SHOWER, SIGNATURE OF Executive Committee QUALITY, S.M.A.R.T., SPECTAZOLE, Raymond W. Ruddon, M.D., Ph.D. SPLENDA, SPORANOX, STAYFREE, Vice President, Science and Technology STERRAD, SUNDOWN, SUREVUE, TERAZOL, THERAKOS, THERMACHOICE, Michael H. Ullmann THE SPECTACLE LENS GROUP, TOPAMAX, Secretary, TVT, TYLENOL, ULTRAM, UNI-ROM, Assistant General Counsel UVADEX, UVAR XTS, VISTAKON. James R. Utaski The following trademarks of other Vice President, Corporate Development companies also appear in this report: ACIPHEX and PARIET (Eisai Co., Ltd.), William C. Weldon BENECOL (Raisio Group), DEKA (Deka Worldwide Chairman, Research and Development Corp.), Pharmaceuticals Group INTEGRA (Integra LifeSciences Corp.), Executive Committee LEVAQUIN (Daiichi Pharmaceutical Co.), THERASEED (Theragenics Corporation).

56 Corporate & Shareowner/Investor Information

Principal Ofﬁce Dividend Reinvestment Plan One Johnson & Johnson Plaza The Plan allows for full or partial divi- New Brunswick, New Jersey 08933 dend reinvestment, and additional (732) 524-0400 monthly cash investments up to $50,000 per year, in Johnson & Johnson stock Annual Meeting without brokerage commissions or ser- The Annual Meeting of Shareowners will vice charges on stock purchases. If you take place April 19, 2000, at the Hyatt are interested in joining the Plan and Regency New Brunswick, 2 Albany need an authorization form and/or more Street, New Brunswick, New Jersey. The background information, please call meeting will convene at 10:00 A.M. First Chicago Trust Company, a Division All shareowners are cordially invited to of EquiServe, at (800) 328-9033. attend. A formal Notice of Meeting, Proxy Statement and Proxy have been Hearing Impaired sent to shareowners. Shareowners who have inquiries regarding stock-related matters can communi- Reports Available cate directly with First Chicago Trust Copies of the Company’s 1999 Annual Company, a Division of EquiServe, via a Report on Form 10-K and Quarterly telecommunications device (TDD). Reports on Form 10-Q to the Securities The telephone number for this service and Exchange Commission, and this is (201) 222-4955. Annual Report are available to shareowners without charge, upon written World Wide Web Site request to the Secretary at the Compa- http://www.jnj.com ny’s principal ofﬁce or by calling (800) 328-9033.

Common Stock Listed on New York Stock Exchange Stock Symbol JNJ

Shareowner Relations Contact Michael H. Ullmann Corporate Secretary (732) 524-2455

Investor Relations Contact Helen E. Short Vice President, Investor Relations (800) 950-5089

Transfer Agent and Registrar Questions regarding stock holdings, certiﬁcate replacement/transfer, dividends and address changes should be directed to: First Chicago Trust Company, a Division of EquiServe P. O. Box 2500 Jersey City, NJ 07303-2500 (800) 328-9033 Internet: (EquiServe Home Page) http://www.EquiServe.com

This Annual Report is printed in its entirety on recycled paper.

We believe our ﬁrst responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair proﬁt.

We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulﬁll their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualiﬁed. We must provide competent management, and their actions must be just and ethical.

We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens – support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.

Our ﬁnal responsibility is to our stockholders. Business must make a sound proﬁt. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.

One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933